By Davide Barbuscia
NEW YORK, April 17 (Reuters) - Tighter lending
conditions after recent bank failures will likely drive the U.S.
economy into a shallow recession in the second half of this
year, bolstering the case for a gradual increase in exposure to
long-term bonds in anticipation of a decline in interest rates,
a Vanguard executive said on Monday.
"That backdrop of tightening lending standards is what we
think drives the economy into recession in the second half of
this year," said Roger Hallam, global head of rates at Vanguard,
the world's second-biggest asset manager, speaking during an
online event.
U.S. Treasury Secretary Janet Yellen said this weekend banks
are likely to become more cautious and may restrict lending
further, possibly negating the need for further interest rate
hikes by the Fed.
Traders in money markets on Monday were largely expecting
the U.S. central bank to increase rates by an additional 25
basis points at its next rate-setting meeting in May.
But there was less conviction on subsequent steps with
investors pricing in multiple scenarios, including potentially a
rate cut as early as June, according to CME Group data.
"There's a lot of policy uncertainty right now," said
Hallam, who expects volatility in rates to remain high in the
short term, with potentially still some upward pressure on
yields on the short-end of the U.S. Treasury curve
Bond yields, which move inversely to prices, tend to decline
during economic downturns.
Current levels for benchmark 10-year Treasuries - which on
Monday were yielding nearly 3.6% - would be a "reasonably good
opportunity" for investors to start extending the duration of
their portfolios, Hallam said, to offset declines in risk assets
such as stocks that are likely to occur in a recession.
(Reporting by Davide Barbuscia; Editing by Anna Driver)
Messaging: davide.barbuscia.reuters.com@reuters.net))
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