MNI Portfolios: AGF Investments: US Bonds Not In Bear Market

By Yali N'Diaye

     OTTAWA (MNI) - Despite calls by some asset managers of a bond bear market,

and BofA Merrill Lynch Global Research Fund Manager Survey released Tuesday

finding that fund managers remain short bonds, AGF Investments Fixed Income

Portfolio Manager Jean Charbonneau told MNI bonds have not entered a bear

market.

     He argued that growth prospects in North America should not lead to

aggressive rate hikes, adding the U.S. bond market is "fairly valued" and

relatively attractive compared to stock markets.

     So the U.S. is his biggest fixed income position in developed countries,

followed by the euro zone, where he has an underweight, and Japan. 

     --LIMITED RATE HIKES

     Charbonneau expects the Federal Reserve, which will make its next

announcement Wednesday, to hike rates three times this year.

     In Canada, he expects growth to be slower than the 2.2% projected by the

Bank of Canada in January, which should limit rate hikes to just two in 2018.

     Charbonneau cited heightened uncertainty related to NAFTA renegotiations

and intensified U.S. protectionism as illustrated by the threat of steel and

aluminum tariffs for Canada should NAFTA's talks fail to satisfy U.S. President

Trump's ambitions. This should keep the BOC on the cautious side in the

tightening process, the portfolio manager said.

     While he still sees a NAFTA deal, it is unlikely, in his view, to happen

before 2019 given Mexican elections as well as U.S. mid-term elections.

     On the domestic front, Charbonneau played down the wage acceleration in

Canada, as he does not expect it to be passed through to the real economy, with

companies more willing to increase their market shares than their prices.

     --MIGHT CUT INFLATION-LINKED BONDS

     Outside nominal bonds, he still has "good positions" in inflation-linked

bonds. However, time might have come to reduce such exposure, which currently

represents 11% of the portfolio allocation.

     Charbonneau continues to see opportunities in emerging markets, where he

has maintained exposure, unlike high yield, where he has been reducing it.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com