Jupiter’s Bezalel shorts US treasuries for first time

Ariel Bezalel, manager of the £593m Jupiter Strategic Bond fund, has opened his first ever short position in US treasuries, citing the opportunity for an asymmetric trade as the US economy recovers.

Top-quartile manager Bezalel said he was becoming more confident in the strength of the US economic recovery and, while warning the crisis in the eurozone could take years to play out, said there are also "better things now being done by policymakers in Europe".

"We see a world of bimodal outcomes - where we either inflate or deflate. Looking at the US treasury market, we see some pretty cheap insurance," he said.

"We have started shorting 2-year and 5-year US treasuries to hedge against a scenario of higher growth and inflation. It is the first time we have ever shorted treasuries."

Bezalel is in the process of enacting the trade, which will initially account for 10% of the fund's portfolio but said he has "the scope to rise this a lot more".

The manager, whose Strategic Bond fund has returned 62.9% over the past three years versus an IMA £ Strategic Bond sector average of 36.8%, said the positions were good examples of cheaply-funded, asymmetric trades.

"The yield on 2-years is around 0.25%, which means the downside is almost nothing and the cost of funding almost negligible. It is a similar situation with 5-year yields at under 0.9%."

Bezalel said he was conscious many strategic bond managers had fallen foul of treasury short positions over the past 12 months, but suggested there was more opportunity at the shorter end of the yield curve.

"People keep saying ‘short US treasuries' but then keep getting caught out by the duration effect. Here there is less volatility," he said.

After dropping to record lows in 2011, US treasuries have performed poorly at the start of 2012, with year-to-date performance the worst since the start of 2003, according to Bloomberg.

The next key date for holders of longer-dated US debt is this Wednesday, when the Federal Reserve will publish explicit interest rate forecasts for the first time.