Big Funds Pile Into Treasuries, AI Stocks as Iran War Risks Fade

2cfi{eg}k][2iqps0dc}6(qb_media_dl_1.png Bloomberg

Article content

(Bloomberg) — Some of the world’s largest investment firms are buying bonds and artificial-intelligence stocks while selling the dollar, betting that war-driven uncertainty has passed its peak following the US-Iran ceasefire.

Article content

Kellie Wood at Schroders Plc spent much of her Wednesday morning snapping up short-dated bonds including Treasuries, a move that Jupiter Asset Management Ltd. is also weighing, alongside plans to sell dollars. Franklin Templeton’s Andrew Canobi forecasts a rally in the 10-year Treasuries. Allspring Global Investments is wading into tech and defense stocks that are insulated from energy shocks.

Article content

Article content

Article content

The actions point to tentative confidence that the worst of the selloff triggered by the war in Iran six weeks ago may be over. Falling oil prices after the ceasefire announcements have revived bets that the Federal Reserve will refocus on interest-rate cuts. Hopes that a gradual return in crude supplies have boosted equities, sending a gauge of Asia Pacific shares climbing to the highest level since early March.

Article content

Article content

“I’ve been tied up buying bonds all morning,” said Wood, a money manager at Schroders, which oversees over $1 trillion in assets. She has added positions in markets that have underperformed the most during the crisis, including the European Union and the United Kingdom. She’s also buying short-dated Treasuries.

Article content

Treasuries rallied on the news, with the benchmark two-year bond yield dropping as much as eight basis points. The 10-year yield fell five basis points to 4.23%. Meanwhile, major currencies all rallied against the dollar, which had been a haven asset during the war. Gold also rose.

Article content

Franklin Templeton also sees value in some Treasuries, adding that markets are likely to claw back much of the March dip that were driven by inflation fears. “US 10-year yields could take a look at the low 4%,” according to director of fixed income Canobi.

Article content

Article content

Still, many traders remain uneasy about the two-week ceasefire, with few details on its terms, leaving them unsure whether it marks a step toward a resolution or merely a pause in the conflict.

Article content

If a peace deal does pan out, it might reverse a pattern in which hedge funds have both cut long positions and covered shorts, a process called systematic de-grossing, according to JPMorgan Chase & Co.’s sales desk. Hedge fund positioning remains light after significant reductions, they added in a note. 

Article content

That sentiment is echoed on the buy side. Allspring’s Fund Manager Gary Tan, who helps manage the investment firm’s nearly $630 billion in assets, said he is using share-price volatility to “improve the quality of our portfolio holdings and enhance its resilience to structurally higher energy prices going ahead.” 

Article content

That means adding selectively to its core themes like artificial intelligence, defense and those with improving corporate governance. 

Article content

Mark Nash, an investment manager at Jupiter Asset Management, said he’s discussing with this team and looking to buy more short-dated Treasuries and selling the dollar. “There’s good news from the Iran-US ceasefire, but the risk is we’re not completely out of the woods as no guarantee a deal is done yet.”