U.S. funds recommend switching cash into bonds in March: Reuters poll

BENGALURU (Reuters) – U.S. fund managers switched recommended global portfolios slightly more in favor of bonds in March, in part on concerns trade barriers between the world’s two biggest economies may escalate to a broader trade war, a Reuters poll found.

A specialist trader is reflected on his screen on the floor of the New York Stock Exchange August 25, 2015. REUTERS/Brendan McDermid

While recommendations for stock holdings held steady, there were still near 4-1/2 year highs, on expectations for continued robust global economic growth and solid earnings.

But stock market losses this month helped the bond market a bit, pushing the benchmark 10-year Treasury yield down to a seven-week low on Wednesday, with U.S. government bonds set to earn their biggest monthly return since August.

While little else was changed in the way of allocations in the latest monthly poll of 12 U.S.-based asset managers taken March 16-29, there was a slight increase to bonds allocation at the expense of cash in the model global portfolio.

The average recommended exposure for stocks held steady at 57.8 percent, and global bonds was 35.4 percent, up from 34.9 percent the previous month, the highest since last April.

“Market confidence has taken a beating and it is not the import tariff itself that is driving sentiment but expectations that we are going to get more and more from this administration,” said a fund manager at a large U.S. investment firm.

Beijing warned the U.S. on Thursday not to open Pandora’s Box and spark a flurry of protectionist practices across the globe after President Donald Trump slapped up to $60 billion in tariffs on some Chinese imports.

A separate poll of more than 100 economists this month showed Trump’s trade tariffs would do more harm than good to the economy but they remained optimistic about the Fed’s rate hike path.

Concerns of a broader trade war have driven demand for longer-dated Treasuries but the short end sell-off has been motivated by strengthening views for faster rate hikes from the Federal Reserve.

Indeed, the Treasury yield curve has flattened in recent months and that trend is forecast to continue over the coming year, according to a separate Reuters poll of fixed-income strategists.

“The economic fundamentals and profits estimates are positive for stocks, and despite the recent volatility, equities remain in an uptrend,” said Alan Gayle, president at Via Nova Investment Management.

“The recent concern and market volatility seems to revolve around policy actions, specifically higher interest rates from the Federal Reserve and trade initiatives/restrictions from the Trump administration. These policy actions represent the greatest risk to the markets, in our view.”

Additional reporting and polling by Rahul Karunakar and Sujith Pai; Editing by Alison Williams