(Bloomberg) — PGIM Fixed Income's Erik Schiller said investors can hold Treasuries with confidence because the recent decline in yields shows that bonds will retain their value even as the Federal Reserve lifts interest rates.
"That is not a bond-bearish recipe from our vantage point," Schiller, the company's head of developed-market interest rates, said Thursday on Bloomberg Radio.
He likened current markets to 2005, when long-term yields kept falling even as the central bank raised borrowing costs. The divergence was described by then-Fed Chairman Alan Greenspan as a " conundrum," a reference that Schiller highlighted Thursday. Greenspan later attributed declining bond rates to economic stability, expectations of low inflation and the fact that global savings were exceeding investment.
PGIM Fixed Income, a unit of Prudential Financial Inc. that oversees more than $650 billion, has been saying for months that investors may be overestimating the prospects for economic growth and overlooking opportunities in the bond market. PGIM's Greg Peters said Feb. 7 on Bloomberg Television that he was " much more skeptical" than the market about the idea that yields would continue to climb.
Yields on 10-year Treasuries jumped from 1.85% before Donald Trump was elected president in November to about 2.4% at the time of Peters's interview. His remarks were well-timed, as yields were about 2.15% as of 11:10 a.m. in New York. Bond prices climb when yields fall.
