Loomis Sayles' Bond Manager on Trade

John Waggoner of Investment News recently spoke with Dan Fuss, a bond expert and 42-year veteran of Loomis Sayles, about new risks facing investors. Here are some highlights:

  • Fuss expects the Fed to implement another two to three rate hikes this year.
  • On corporate spending and wage increases, Fuss says he believes some of the big industrials (citing Caterpillar and Deere as examples) are incorporating contingencies in their spending plans: “If the trade barriers start, their expansion stops.” He adds, “Once you see uncertainty, you say, I’m going to wait and see what happens. Sanctions and tariffs can damage the economy.”
  • Beyond trade tariffs, Fuss is also concerned with geopolitical developments that are broader than trade but heavily influenced by it. He says the Fed is taking the same approach, looking at the geopolitical situation and at the movement of people in the Mideast and South America, and “how those things affect the cost of money in those areas.”
  • The Fed, says Fuss, “doesn’t want to ruin a good thing” and will probably settle rates in at around 3% which would put the 10-year Treasury note just over 4% and the long bond at 4.5%. “As soon as they see something implode on tariffs or trade barriers, it will scare them.”
  • The geopolitical climate, argues Fuss, is the “overwhelming variable. It’s not a good thing.”

Right now, Fuss says the Loomis Sayles Bond fund is 35% in reserves (about 20% in T-bills and 15% in longer-dated Treasuries and related instruments), and the average maturity of the fund has been cut by more than half.