April 30, 2018 / 11:50 AM / 2 years ago

U.S. funds preferred cash in April at expense of bonds

FILE PHOTO: A specialist trader works at his post on the floor of the New York Stock Exchange (NYSE) in New York, U.S., April 27, 2018. REUTERS/Brendan McDermid

BENGALURU (Reuters) - U.S. funds recommended cutting bonds in April and increasing cash holdings to a six-month high on concerns the U.S. government will ramp up borrowing to cover a widening budget gap, a Reuters poll found.

While benchmark U.S. Treasury 10-year yields edged above 3 percent last week and touched levels not seen since July 2011, global growth concerns from trade wrangling brought it back below that on Friday.

Reuters monthly survey of 12 U.S.-based money managers, taken April 20-27, showed global bond allocations accounted for an average 34.9 percent of the model global portfolio, down from 35.4 percent the previous month.

Asset managers increased recommendations for cash holdings to the highest since October, suggesting a wait-and-see approach ahead of a May 1-2 Federal Reserve policy-setting meeting.

“The sell-off in Treasuries was a clear sign of an increase in government borrowing linked to the budget shortfall as a result of the massive tax overhaul. That along with signs of a pick up in inflation are very negative for bonds,” said a fund manager at a very large U.S. investment firm.

While rising bond yields have unnerved Wall Street, fund managers recommended an increase in global equity allocations to 57.9 percent. That is slightly above a more than 4-1/2-year high of 57.8 percent set in February when managers made a big jump in equity holdings.

“We remain positive on the economy and the equity markets in 2018, but the period of high returns and low volatility has become a wistful memory. Bond investors are likely to be facing steady headwinds,” said Alan Gayle, president at Via Nova Investment Management.

“That suggests a favourable and supportive backdrop for earnings and stock prices, and we favour stocks over bonds.”

Reporting and polling by Rahul Karunakar; Editing by Toby Chopra

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