Economics & Strategy – Fixed-Income Strategy: Second

In second place for a second straight year is Shogo Fujita. “His research is thorough and detailed, and his ideas are interesting and imaginative,” asserts one loyalist. The Bank of America Merrill Lynch strategist sums up his outlook succinctly: “Don’t fight the central bank.” Yield levels will remain low and stable for the next two years, Fujita predicts, and the Bank of Japan will not abandon its current policy with a rate hike until the second half of 2015 — or even later. Factors that could have an upward impact on yields — growth, inflation, the easing of the euro zone crisis, increased issuance of Japanese government bonds — will be largely offset by the expectations of aggressive monetary easing that are applying downward pressure, he explains. “We expect to see a ten-year JGB yield range for 2013 of 0.30 to 0.90 percent,” he says. “The bond market appears to have entered one last bubble phase, and we expect a gradual bull flattening of the yield curve as the Bank of Japan lengthens the maturities of the JGBs it purchases.” For the next six months, Fujita recommends a portfolio with five- to eight-year noncallable positions in both JGBs and swaps. “We like bullet investments in maturity zones likely to be affected positively by the Bank of Japan’s ultra-easing stance,” he explains. “We think it will be worth considering investing in the long-term and superlong sectors once the bank starts seriously increasing its purchases in those sectors, but it is too early to do so now.” — Thomas W. Johnson