Eaton Vance fund loads up on cash after making 15% during bond rally

Eaton Vance fund loads up on cash after making 15% during bond rally
Bond market losing allure amid hunt for yield, says fund manager Kathleen Gaffney
JUL 24, 2016
The hunt for yield is making the bond market less attractive, said Kathleen Gaffney, whose Eaton Vance Bond Fund is surging this year after plunging in 2015. Treasury 10-year yields, the benchmark for everything from U.S. mortgages to dollar bonds in developing nations, dropped to a record this month as investors sought alternatives to negative interest rates in Europe and Japan. The Federal Reserve will keep its benchmark unchanged when it meets tomorrow and the following day, based on a Bloomberg survey of economists. “I am actually building cash,” Ms. Gaffney, who is based in Boston, said on Bloomberg Television on July 22. “With the reach for yield, there's less value in the market.” Demand for income is spreading beyond Treasuries to corporate and emerging-market debt, she said. The U.S. 10-year note yield climbed was little changed at 1.57% as of 7:03 a.m. in London, according to Bloomberg Bond Trader data. The price of the 1.625% security due in May 2026 was 100 15/32. The yield dropped to a record 1.32% on July 6. The Eaton Vance Bond Fund has returned almost 15% this year, according to data compiled by Bloomberg. It fell 1.8% over the past 12 months, ranking near the bottom among its competitors, the figures show, Ms. Gaffney manages the fund with Henry Peabody, according to the Eaton Vance website. “Near term, I see some limited scope for yields to rise,” said Alex Stanley, a senior interest rate strategist at National Australia Bank Ltd. in Sydney. “While the Fed is still likely to tighten at some point, they remain cautious and the market will be slow to reprice for higher rates.”

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