Fixed Income  

BlackRock: Think short term to negotiate tapering volatility

Bond investors will be forced to abandon long term strategies as the US Federal Reserve’s plans to taper quantitative easing shake up markets, according to BlackRock’s Ian Winship.

Mr Winship, manager of the £73m BlackRock Absolute Return Bond fund, said investors must expect more volatility when the US’s central bank starts to reduce the amount of money it is pumping into the country’s economy.

The manager said he was preparing for what could be “the hardest period in my career” by focusing his fund less on longer-term strategic trades and more on a “disciplined process”, although he emphasised that a shorter time horizon did not mean day-trading in bonds.

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The Federal Open Market Committee is due to meet later this month and is expected to announce details of how and when ‘tapering’ will occur.

“I don’t think [tapering] is priced in to the market,” Mr Winship said. “The Fed can talk, but if there is a run of strong data the market will get more volatile.

“You have to expect more volatility as the market is going to trade from one data point to another. I think there is going to be more volatility than I think I’ve seen in 25 years.”

The yields on 10-year UK and US government bonds - which move inversely to prices - have risen sharply this week as more strong data has hinted at the economic recovery gathering pace. UK 10-year gilts ticked above 3 per cent at the close of trading yesterday (September 5).

Mr Winship added: “We’re not talking about day trades, but these times require a different focus to the past 25 years. There should be a change in time horizons - we should be more short term in our decisions and more flexible. You can’t take a long term view and stick to it. If you sit on one trade and markets go up and down around you, you will have to answer to your clients.”

Mr Winship’s warning comes after Axa Investment Managers’ Nick Hayes, who runs the firm’s $176.2m Global Strategic Bonds fund, told investors to “be prepared to lose money” when the Fed announces its tapering plans.