Ruffer boosts portfolio duration in October after US Treasury rout

investmentweek.co.uk:

Duncan MacInnes (pictured) co-manages the Ruffer Investment Company alongside Jasmine Yeo.

In the trust's latest factsheet, managers Duncan MacInnes and Jasmine Yeo said the bond market narrative has shifted from «recession is still a possibility» to «definitely a soft landing», with long-dated US yields rising through the 5% level as a result.

This shift gave them an «attractively priced opportunity» to significantly increase the portfolio's duration, arguing that investors seem «comfortable that both the economy and financial markets can support higher interest rates for longer».

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The managers added to the portfolio's existing longer duration position in US Treasury Inflation Protected Securities (TIPS) and also bought long-dated nominal government bonds for only the second time since the Global Financial Crisis, with the previous occasion as a result of prior high yields in October 2022.

MacInnes and Yeo said it has long been Ruffer's belief that rising bond yields would «slowly then suddenly» cause damage to financial markets and thereafter the wider economy.

They said it was their «firm view» that bond yields cannot rise further from here without doing «significant damage» to both the real and financial economies.

«In the short term the opposite may be more likely — that bond yields come down, giving markets a temporary fillip — and we should benefit from such an outcome through the fund's increased duration,» the managers wrote.

The managers noted there were «increasingly visible» signs that high interest rates are causing damage in financial markets, as seen in struggling small caps, utilities and banks, but also in the real