The surge in U.S. Treasury yields has gone too far for one Japanese fund manager. He has stepped in to buy and suggests his compatriots do the same.
U.S. 10-year yields have risen to a key technical resistance level just below 1.4% and won't go as far as 1.5%, according to Akira Takei, a global fixed-income money manager at Asset Management One in Tokyo. That makes the recent bond selloff a good buying opportunity with a lower likelihood of incurring significant capital losses, he said.
"Technically, the 10-year U.S. yield is looking attractive and we are shifting part of our investment in Australia into Treasuries," Mr. Takei said. "Japanese investors may think back later and say it was good they bought Treasuries now."
Benchmark 10-year yields climbed to 1.41% Wednesday, the highest in a year, as investors increased bets that inflation and economic growth will strengthen. That's close to a key Fibonacci retracement level from the yield slump seen last year which should act as technical resistance, said Mr. Takei, whose firm oversees more than $500 billion.
U.S. inflation expectations are increasing because of short-term factors such as the rise in commodity prices and the impact of cold weather in the U.S., according to the fund manager. Disinflation pressures will eventually cap the upward rise in price expectations, he said.
Japanese investors are the largest foreign holders of U.S. sovereign bonds. When benchmark yields first breached 1% in early January, money managers in Japan suggested they would only become attractive if they climbed to 1.3%.
"U.S. yields have been lower compared to many other developed nations and have underperformed those in Australia, but they are catching up now," Mr. Takei said. Any further increase may lose momentum as it would be damaging to stocks, he said.
