RBC BlueBay’s Bond Bear Who Called 5% Yield Pares Bearish Bets

(Bloomberg) — Long-term US Treasury yields have climbed so quickly that a prominent bear has said it’s time to take some chips off the table.

Mark Dowding, chief investment officer at RBC BlueBay Asset Management, said he closed a bearish bet on long-maturity bond prices last week after a stronger-than-expected jobs report pushed 30-year Treasury yields above 5% for the first time since November 2023. He also pared back bets that 30-year bonds would underperform two-year notes, a trade known as the curve steepener.

“Yields have gone far enough for the time being,” said Dowding. “There now isn’t really a clear trade in US rates.”

Dowding, who oversees $130 billion in fixed-income assets at RBC BlueBay in London, had been bearish on US government debt since September after a research trip to the US convinced him that Donald Trump would win the presidential election. He believed that the combination of a strong economy and a persistent fiscal deficit would push 30-year yields to 5%. 

Dowding said he also “loaded up” on corporate debt after the September trip, and bought the dollar against the euro and pound as part of a “Trump trade.” These moves helped his BlueBay Investment Grade Absolute Return Bond Fund, which manages 913 million euro ($930 million), return 6.3% over the past year, beating the 3.9% gain of its benchmark. He cut back on the corporate credit bets as Treasury yields surged, while keeping the long dollar position.

Now, he said, a short-term equilibrium on Treasuries has been reached. 

“There are probably more interesting trades elsewhere,” Dowding said.

One of his bets is on Japan, where he sees the central bank raising interest rates, pushing up domestic bond yields and strengthening the yen.

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