By Gregor Stuart Hunter and Narae KimJPMorgan Asset Management is keeping faith in Fed -- and taking a contrarian bet on United States interest rates to show it.While many have given up on Federal Reserves tightening path, Ramon Maronilla, a bond and currency investment specialist at firm, says that view may underestimate strength of United States economy.Even if American economic exceptionalism ends and growth levels converge toward longer-run trend, central bank isnt likely to veer from its forecast for two more rate hikes this year, he said at a briefing in Hong Kong Thursday.Maronilla sees opportunities for United States interest rates to surprise on upside, and has built up holdings of futures which will pay out if current consensus view that Fed wont move its benchmark this year proves mistaken.We could take advantage of this through eurodollar futures, and were doing this to some degree, he said.
The trade, which represents a small portion of JPMorgan Assets risk budget, would pay off if our forecasts do play out and markets are wrong, he added.Its a view that contrasts with recent moves in money markets, where various gauges are signaling expectations for policy easing.JPMorgan Asset also reiterated its preference for European and United States high-yield bonds, which they say may have been unfairly penalized considering their largely conservative balance sheets compared to accumulation of debt at companies with higher ratings.We are seeing most high-yield companies have not exhibited irresponsible late cycle behavior that you would typically expect at this stage, Maronilla said.
They have been fairly cautious in managing their balance sheet.