The world\’s rapidly aging fund manager says U.S. Treasuries are too risky to hold

Idanna Appio worked at the Federal Reserve Bank of New York for 15 years, analyzing the history of sovereign debt crises

Idanna Appio worked at the Federal Reserve Bank of New York for 15 years. Analyzing the history of sovereign debt crises.
Now, as fund manager of the $138 billion First Eagle Investments, she has come to the conclusion that U.S. Treasuries are too risky to own.
The outside world expects the Federal Reserve to cut interest rates. But Appio\’s judgment is about more than just the timing of the rate cut.
It goes hand-in-hand with a new era of accelerating inflation, rising government health spending and widening deficits.
What\’s behind all this? The fact is that the world is aging rapidly. And now is the time to bring your investment portfolio up to date.
Rather than buying what is considered the safest asset in the world to balance her stock and credit holdings, Appio added gold.
She believes that the yield on long-term U.S. Treasury bonds does not provide adequate compensation, and said that the U.S. government borrowing has surged. Many people worry that this may trigger a debt crisis in the next few years.
Appio\’s strategy is to avoid longer-dated bonds. If the public debt situation worsens due to rapid growth in aging-related state spending, longer-dated bonds may bear the brunt.
Other large fund managers such as BlackRock, Royal London Asset Management and Germany\’s DWS Group are also looking for ways to invest and protect their clients\’ money in this environment.
The impact on financial markets has affected all asset classes and regions. There is no one-size-fits-all solution.
Many of the strategies being adopted in response to an aging world reflect concerns about inflation: less bonds and more stocks and commodities.
\”We think of demographics as a slow-moving train. But that\’s not the case,\” said Erik Weisman, portfolio manager at $607 million MFS Investment Management.
This is a train coming towards us. If you don\’t get off the tracks, you will be hit and killed.
Recent evidence supports the urgency.
South Korea\’s fertility rate hit a record low. Numbers are also falling in Italy and Germany. BlackRock CEO Larry Fink and investor Stanley Druckenmiller have both warned of a looming retirement crisis.
When Fitch downgraded the United States last year, it cited the costs of an aging population as one of the reasons.
Appio said: U.S. debt levels are very high. We are about to face many aging-related challenges. But these challenges lack the funds to deal with them.
The yield on longer-dated Treasury bonds really doesn\’t compensate for the long-term risk.

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