The Financial Times headline by Robin Wigglesworth reads “Low yields have left investors numb to risk, bond veteran Dan Fuss says.” That assumes investors even remember that risk exists, which oftentimes seems to not be the case. They may have forgotten altogether. Wigglesworth reports:
The strong rally in corporate debt markets triggered by a flood of central bank stimulus is spooking veteran bond investor Dan Fuss, who warns that investors are taking the most risks he has seen in the past six decades.
Central banks last year sharply cut interest rates and unleashed vast bond-buying programmes to soften the economic impact of the pandemic, at a scale that even dwarfed measures taken to combat the financial crisis.
The stimulus has helped produce a remarkable market comeback, lifting stocks to record highs and helping pin government bond yields near historic lows. But the investor scramble for higher-returning but lower-rated, riskier debt is now so ferocious it is unnerving money managers like Fuss, the vice-chair of $353bn investment house Loomis Sayles.
“It scares me when I see what is given up in terms of natural prudence and caution,” Fuss said in an FT interview. “We’ll have to wait to see how things play out, but the reach for yield has overridden the fear factor.”
Fuss started his career in finance in 1958, when he left the US Navy for a job at Wauwatosa State Bank in Wisconsin. After a subsequent stint managing Yale University’s endowment he joined Loomis Sayles in 1976 and managed one of its flagship bond funds until he finally stepped back from day-to-day portfolio management earlier this year, aged 87.
Over that period, Fuss earned many awards, including being named in the Fixed Income Analyst Society’s hall of fame in 2000, and winning Morningstar’s yearly outstanding portfolio manager award as recently as 2019.
Yet the excesses of the current environment were the greatest of his career, exceeding even those of the pre-financial crisis era, according to the bond market veteran. “I’m optimistic, but you have to keep your wits about you. The bond market is not as safe and secure as it used to be,” Fuss said. “There are risks everywhere.”
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