Hoisington Investment Management has been successfully betting on Treasury bonds since the late 1990s, helping put its Wasatch-Hoisington US Treasury fund in the top 1% of funds in its class over the past decade as interest rates have tumbled, according to Morningstar. And it doesn’t see interest rates rising anytime soon.
The big reason Hoisington — unlike many strategists — thinks the Federal Reserve will keep rates low for a good deal longer: debt. In the US, Hoisington Chief Economist Lacy Hunt says, public and private debt is 330% of gross domestic product, well above the 250%-275% level that signals danger, The Wall Street Journal reports. Europe and Japan are even more indebted, at 460% and 650%, respectively, and Hunt says emerging-market countries’ debt loads have been on the rise, making the world as a whole more overindebted now than in 2008.
High debt has and should continue to lead to subnormal growth, decelerating inflation and lower long-term rates, Hunt says. He expects rates to stay very low for years to come, with the Fed and other central banks unable to counteract the global debt troubles and spur growth. “The Fed is out of the game,” he said. “I don’t think the Fed is going to raise rates. All they can do is hold rates here for longer and longer time periods.” He sees the 30-year U.S. Treasury falling below 2% as higher-inflation expectations fade.