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Hasenstab who oversees a number of bond investment strategies at
Franklin Templeton, made a name for himself with contrarian bets
in the past on unloved markets such as Ireland and Ukraine,
which then yielded huge payouts.
He predicted as recently as March that U.S. Treasury yields were
set to go higher, and that the Federal Reserve could not be
excluded from raising interest rates further.
So far though, 10-year U.S. yields have slipped, their fall
accelerating recently as the Fed signaled readiness to cut rates
as early as July due to slowing growth and inflation.
While the Fed has struggled for a decade to meet its inflation
target and forward inflation swaps are signaling sub-2%
inflation for years ahead, U.S. unemployment levels are near
five-decade lows.
Speaking in Copenhagen, Hasenstab said wage inflation was
ticking higher and was likely to do so further.
"The cyclical and structural factors on inflation from the labor
market are real and we shouldn't ignore them just because they
haven't been in the past," he told a conference.
"We should at least question the possibility that maybe this low
inflation environment won’t last forever."
Hasenstab made no specific reference to his current investment
strategy but said portfolio managers needed to "think of a world
that might be different" because of risks stemming from
deficits, unconventional policies, populism and the lack of
policy tools to tackle the next recession.
"I think this issue of moral hazard, believing that central
banks can solve every world problem when they’ve already fired
most of their bullets is something we should question when we're
building our own portfolios," he said.
"What we have opted to do is build a portfolio we think can
actually hedge some of those risks," he said.
He was "doubling down on some experiments," he said, but did not
elaborate.
Hasenstab's Global Bond Fund which is one of the best performing
in its category over a ten-year period had returned 2.5% this
year as of May.
However, assets under management are around $34 billion, versus
almost $70 billion four years ago, possibly due to outflows from
emerging debt in recent years.
(Reporting by Stine Jacobsen in Copenhagen, writing by Sujata
Rao in London; Editing by Dhara Ranasinghe)
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