Fidelity, Schroders Win Big on Treasuries Bets as Markets Swoon

Some of the world’s top money managers are sitting on a windfall after the collapse of Silicon Valley Bank spurred the biggest rally in US Treasuries since the early 1980s.

Schroders Plc, Fidelity International and M&G Investments are among funds which initiated bullish bets on Treasuries before the failure of several US lenders forced a rethink of the Federal Reserve’s rate-hike path. Now they’re gearing up for even more gains as rising risks of a downturn fuel demand for havens.

“We prefer to now be positioning for recession,” said Kellie Wood, money manager at Schroders, who has bullish positions in two-year US government debt. “It’s hard to see Treasuries selling off too much from here.”

Traders are rushing to recalibrate expectations for Fed rates after SVB’s downfall triggered a tsunami of volatility that’s jolted everything from the US economy to Japan stocks and corporate debt. Yields on two-year Treasuries — which are most sensitive to interest-rate changes — tumbled as much as 65 basis points Monday in a move that surpassed even the period surrounding Black Monday’s stock-market crash in 1987.

The notes whipsawed on Tuesday, with yields rising as much as 22 basis points to 4.19% before falling as low as 3.82%.

“We’re still constructive on duration overall,” said George Efstathopoulos, money manager at Fidelity International. Recent events “could lead to a lower terminal rate in the US with fewer rate increases” going forward, he added.

The fund turned “more constructive” on Treasuries as yields hit around 4%, and eased off “a bit when we’ve gone to the three, close to 3.5%,” he said.