The man who made some of the boldest contrarian bets in the bond market last year has a new message for investors: get out of supposedly safe government debt now, before it is too late.
"The downside of being early is very limited. You're not participating in any 11th-hour rallies, but it's not like you're losing money," says Michael Hasenstab, who oversees $175bn in bonds for Franklin Templeton, the Californian asset manager.
Rising interest rates mean losses for holders of long-dated debt, and he says that if it were not for the Federal Reserve's bond-buying program, US Treasury yields would be "higher, meaningfully higher".
"The worst has happened and we haven't fallen into a deflation trap. As things either stabilize or get a little bit better, it's hard to imagine deflation coming out of nowhere." Without that, he says, "US 10-year yields below 2 per cent just don't seem consistent with the US economy."
Mr Hasenstab is anything but a bleating Cassandra. The softly spoken 39-year-old has the air of an academic, while he has built a remarkable investment record through a combination of patient optimism and almost preposterous confidence. Last year funds controlled by Mr Hasenstab practically cornered the market for Irish and Hungarian debt as part of aggressive bets that both countries would recover from the financial crisis.
On the risks to "safe" government debt, Mr Hasenstab is not forecasting when rates will rise. But he has adjusted the $66bn Templeton Global Bond Fund he manages in anticipation. For instance, in emerging markets such as South Korea he has been buying short-dated bonds paying 2.5 to 3 per cent, with the prospect of gains from currency movements over time.
"They have an interest rate advantage, so if we look out five years, the value of the Korean won relative to the value of the dollar will probably be higher because we're just flooding the world with dollars," he says.
So while the typical effective duration – a measure of sensitivity to interest rates – for global bond mutual funds run by peers is five or six years, his is less than two years.
Mr Hasenstab likens this to a previous bet on the Japanese yen, where Templeton was very early on its negative view of the currency. "It didn't work for years and then when it happens, it happens pretty big, pretty quickly. You can't come in after it starts happening."