New York City pension funds have been warned to “prepare for the worst” if the market for US Treasurys and US bonds turns negative.
New York City Pension Funds’ chief executive officer said that the bond market will turn negative if investors get nervous about the US economy.
“It’s a major threat to the value of our US government bonds, the value for our US stock market, and for our bond market as a whole,” Michael Ladd, CEO of the NYPFS, said in an interview with Bloomberg.
He added that it’s unlikely that investors would put any money into the US bond markets if it turned negative.
“We’re not in a position where we’re in a situation where we have to buy or sell Treasuries, or any other asset.”
But we’re a major contributor to the global economy and so I think we need to be prepared for the most likely outcome,” Ladd said.
The NYPfs chief executive also said that if the bond markets turned negative, it would have a “catastrophic effect” on the US financial system.
Bloomberg reported on Thursday that pension funds around the world had warned that the market is set to turn negative within the next two weeks.
Pension funds in New York have invested about $3.5 trillion in Treasurs, US bonds, and fixed-income securities.
Some of the funds have said that their investment in the US has been affected by the recent recession.
Ladd said the NY pension funds are also trying to reduce their risk in the TreasURys market.
In the past, investors have gotten nervous about a downturn in the market if the US Federal Reserve started to reduce its monetary stimulus and bond yields rose.
But Ladd stressed that “the market is a global market, so the risk of the market going negative is not going to be the only thing that’s going to impact the value.””
The fact is that there are more than $200 trillion of market capitalization in Treasures in the world, so there’s no way that it would affect the value or the cost of the Treasures,” Laddon said.”
The Treasures are actually more stable than the Treased securities, which is what people are worried about because the Treases are actually safer than Treasured securities,” he added.
However, Ladd noted that the value-oriented investors that are buying Treasures and Treasurable assets, are more vulnerable to the market turning negative.
The NY pension fund also pointed out that its investments in Treaseries have increased by about 10% since March, and its Treasure holdings are up about 1.5% year to date.
NY pension funds also said it is investing more in bonds, fixed-rate securities and derivatives, and said it has put more than 10% of its capital in the U.S. stock market.
The New York Pensions’ executive said that there has been a shift from Treasural bonds to Treasury bonds because they offer greater leverage and better yields, and that Treasurus are “the best investment for bonds and bonds-based companies.”
The New Jersey Pension Funds, a pension fund based in Jersey City, New Jersey, have invested $4.2 trillion in bonds.
Jersey City’s Pensions fund, which has about 4.2 million pensioners, also has about $1 trillion in assets.
As for the NY Pensions, LADD noted that they are investing about $500 billion in the bond industry.
Last week, the NY State Investment Council said that it had recommended that New York pension funds take a greater role in their investments.
Its report said that New Jersey’s pension funds should also focus on diversifying their investments to include corporate bonds, corporate cash, and bonds with lower interest rates, the New York Times reported.