Marathon Asset Management CEO Bruce Richards said government bond yields trading at negative levels “is the most absurd thing central banks have done and it will blow up in their face,” at the CNBC Institutional Investor Delivering Alpha conference on Thursday.
Ultra-loose monetary policy by major central banks including, the Bank of Japan and the European Central Bank, have contributed to the phenomenon of government bond rates falling below subzero levels.
The 10-year German government bond TMBMKDE-10Y, +0.00% finished at negative-0.50% on Thursday.
Richards said investors may be tempted to reap as much gains as they can from this year’s relentless rally in government bonds, but said it was a “fool’s game.”
The 10-year Treasury note yield TMUBMUSD10Y, +0.00% is trading at 1.79%, more than 80 basis points lower than at the start of the year. Bond prices move in the opposite direction of yields.
Richards said he was worried about the bubbling excesses in the corporate debt market, and that the recent run-up in their performance was overextended.
Richards said he felt the level of debt on the balance sheets of U.S. corporations was “unprecedented,” pointing to the rapid growth of the leveraged loan sector — bank loans made out to sub-investment-grade corporations. Marathon was already “setting up for the next distressed cycle,” he said.