Guggenheim Partners’ chief investment officer says the three-decade rally in U.S. government bonds is drawing to a close and that interest rates will move higher in coming years.
“We’re coming out of a generational bull market, and I believe rates for Treasury securities have traded at their lows,” said Guggenheim CIO Scott Minerd in an interview with Fortune published this week. “Over the next three to five years, I expect rates to move up significantly.”
Rising rates would lead to lower prices for bonds and fixed-income ETFs. [Special Report: Navigating Higher Rates]
Guggenheim has a sizable ETF business following itsacquisitions of Rydex SGI and Claymore Group in recent years. Last month, a Guggenheim-led consortium cinched a deal to acquire the Los Angeles Dodgers for about $2.1 billion.
“The Fed’s policy has been to maintain very low mortgage rates to help clear the inventory in the housing sector. We expect the overhang in housing to be cleaned up by 2015,” Minerd told Fortune. “At that point the Fed will realize that inflation is becoming a problem and will begin to raise rates, and that’ll be the beginning of the generational bear market.”
U.S. Treasuries have been very kind to buy-and-hold investors over the past 30 years.
However, further gains are “limited,” the CIO said, so it makes sense for investors to move away from Treasuries — or even dump them altogether. [Short ETFs for Rising Interest Rates]
“It’s always hard to eliminate an asset class because I’m a staunch believer in diversification. But if you push me hard enough, I’d tell you that I would have no allocation to Treasury securities at this point,” Minerd said in the interview.
Instead, he likes corporate bonds and mortgages for their higher yields, as well as floating-rate securities. [Best ETFs for Floating Rate Bonds]
Privately held Guggenheim Partners manager over $125 billion in assets. The ETF business is part of Guggenheim Investments.
Earlier this week, the chief operating officer of Guggenheim investments, Richard Goldman, and two other top executives were let go as part of a reorganization of the firm, reports Jessica Toonkel at Reuters. Goldman had been chief executive of Rydex.
The departures come amid speculation that Guggenheim Partners is in talks to acquire Deutsche Bank AG’s asset management business, according to the report.
Read the disclaimer; Tom Lydon is a board member of the funds for Guggenheim Investments.