Dollar fund chief Ben Yuen remains cautious about a fast economic recovery in America, but believes bonds are attractive at this point in the interest rate cycle
Ben Yuen, head of fixed income, Asia, for First State Investments, watches the US treasury market very closely.
Any major movement in the market makes an impact on his funds' prospects, particularly First State's Asian US dollar bond fund and Hong Kong dollar bond fund. Both funds are for institutional investors, but US treasury movements also affect the bond holdings in First State retail funds.
'For both funds, the movement in US treasuries is quite significant,' Mr Yuen said. 'It is crucial for the Asian US dollar bond fund performance, and also crucial for the Hong Kong dollar fund because of the dollar peg.'
In the past few months, yields on 10-year government bonds have increased dramatically, from a recent low of 3.07 per cent to 4.6 per cent on September 3.
A major reason for the rise in US treasury rates, which is accompanied by a corresponding fall in capital values, is a perceived shift in policy by Federal Reserve chief Alan Greenspan away from 'unconventional' support for long bond prices. Another is an expectation that with the recovery of US corporate earnings, pressure will grow for interest-rate adjustments to cool an overheated economy.
