LGIM Allocation Manager: The Case for Short Rates Is A Little Lazy


There is a broad consensus on cutting interest rates in the market and it seems investors have already forgotten about the talks on a realistic path for inflation.

Talk to Citywire selector, Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management (LGIM), said many of the investors his team spoke to are short or wish to sell short rates.

“But the arguments people have mentioned to support their short position are a bit lazy,” he said. Many of these comments follow market commentators discussing the negative impact of tapering on bond supply and demand.

However, van den Heiligenberg said the tapering is a non-event and is well reported by market participants and central bankers. “We don’t think that once the tapering starts, it will really move the markets,” he added.

Van den Heiligenberg said everyone seems to have forgotten what was said 18 months ago about the Phillips curve not working and you have to be very humble to predict inflation.

“At that time, inflation was low and going down, and we forgot everything. And the markets are making the same mistake again as inflation will normalize and in the long run come closer to central bank targets.

“We still think the world lower for longer, with the structural headwinds of technology and China, hasn’t changed much. We are cautious of people who sell bonds short because of inflation, ”he added.



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