"Market Monitor"- Michael Hasenstab, Portfolio Manager of the Templeton Global Bond Fund
Friday, April 03, 2009PAUL KANGAS: My guest "Market Monitor" this week is Michael Hasenstab, portfolio manager of the Templeton Global Bond Fund. Michael, welcome back to the NIGHTLY BUSINESS REPORT.
MICHAEL HASENSTAB, SR. VP, PORTFOLIO MGR., TEMPLETON GLOBAL BOND FUND: Great to be back. Thank you.
KANGAS: Give us a quick review of what the global bond market has been doing since the start of this year?
HASENSTAB: Well certainly like a lot of markets, it's actually been pretty volatile, but fortunately global bonds have held up pretty well. The Templeton Global Bond Fund (TPINX) is up about 2.5 percent on the back of about a 6.5 percent gain last year. So I think global bonds are beginning to prove themselves as a source of risk diversifiers. Now that's not to say we haven't had our own volatility. Certainly there has been some volatility in the markets and the currency markets and the sovereign credit markets and the interest rate markets, but frankly we've been viewing that as an opportunity. During February, we saw a pretty significant sell-off of foreign currencies. We saw a widening of interest rates and a widening of credit spreads among sovereign issuers, but we thought that was a pretty good opportunity so we embraced that period of volatility and actually began to add to non-dollar assets. We began to add to foreign markets and a lot of the local interest rate markets as well as sovereign credits.
KANGAS: With regard to U.S. bonds the trillions in new Treasury debt, what is the long-term impact here in the states?
HASENSTAB: I think there's a couple pretty significant long-term impacts there. Not only is Treasury going run close to a 10 percent fiscal deficit, but the Federal Reserve Bank has expanded its balance sheet to trillions of dollars. They've already recently announced that we're going to buy our own debt, essentially quantitative easing. Those two factors alone I think will contribute to a much weaker dollar against several of the currencies. So that I think is a very important implication, also a tremendous investment opportunity. Additionally as the economy recovers over time and the Fed has to unwind this balance sheet, that could put pressure on interest rates and again we view that as an opportunity to look at foreign markets as a way of hedging against the potential inflationary risks that could amount over the medium term here in the U.S.
KANGAS: But as the economy recovers, you do see higher interest rates ahead. They can't go much lower, can they?
HASENSTAB: It's hard to go too much lower. Now I think in the very short term, the deflationary impact of deleveraging and the commitment of the Fed to hold rates at this level or close to this level will probably prevent them from going up too much in the short term, but certainly over the medium term, I think we do need to think about strategies to take advantage of those potential rise in rates and if we do see an inflationary environment, it probably is going to be bad for the dollar. It's probably going to be good for some of the foreign countries that produce a lot of hard commodities and so there is a way to position for that globally but we do need to think through that.
KANGAS: Where do you see the best bond investments, in government, municipal or corporate?
HASENSTAB: Frankly I think the distortions today are so great that all three of those have some pretty tremendous opportunity. In our strategy we're focusing on international bond markets to position for the currency dynamic, but a lot of sovereign credit spreads have widened out tremendously giving some pretty good value there. Similarly in the corporate credit markets, you have to be selective company by company, but there are opportunities there as well as in the municipal markets but in the global bond fund, it's a government strategy.
KANGAS: Michael, let's see how your fund has fared. The symbol TPINX and we'll have a chart up here momentarily and it had a rough time of it in March, but it's made a nice comeback here.
HASENSTAB: In February and the beginning of March, we had a broad- based rise in the dollar. That hurt the strategy initially and also sovereign credit spreads widened out a fair amount in that sell-off, but we've also seen those reverse pretty quickly and we think it kind of set the stage for some longer-term opportunities in that period.
KANGAS: Do you personally own the fund?
HASENSTAB: Yes, I do. Yes, I do.
KANGAS: You like your own cooking, as they say.
HASENSTAB: Exactly.
KANGAS: I want to thank you for sharing your views with us once again. It's great to see you.
HASENSTAB: Great. Thank you.
KANGAS: My guest Michael Hasenstab of the Templeton Global Bond Fund.
