General Electric Co. (GE)’s investment arm is shedding commercial-mortgage securities, high-yield corporate bonds and emerging-market debt, anticipating that investor expectations for the U.S. economy will deteriorate.
GE Asset Management has been reducing holdings of riskier securities since late February, after favoring them as they rallied over the previous 14 months, said Paul Colonna, 42, who oversees about $53 billion as the Stamford, Connecticut-based unit’s chief investment officer for fixed income.
The threat of a federal-government shutdown as lawmakers wrangle over budget cuts underscores the end of the fiscal stimulus that helped the U.S. escape an 18-month recession, Colonna said. The economy faces a renewed housing slump that may extend for years as policy makers reduce government support amid a lack of “bread-winner job” creation and tepid wage growth even as unemployment falls, he said.
“There’s not enough to drag us down into a double-dip recession, but there’s enough to take down the lofty expectations that are out there and impact asset prices,” Colonna said in a telephone interview. There have been “some very, very aggressive run-ups” in credit markets, he said.
U.S. commercial-mortgage bonds have returned 20.5 percent since the end of 2009, while speculative-grade company bonds have gained 20.3 percent, according to Bank of America Merrill Lynch index data, reflecting growing confidence in the economy and the Federal Reserve’s stimulus for markets that’s pushed investors to seek high-yielding debt.
Emerging-market debentures returned 18.6 percent, while Treasuries have offered 5.3 percent, the data show.
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