Jeff Sherman, deputy chief investment officer at DoubleLine Capital, said he remains bearish on long-term U.S. Treasuries, arguing that heavy government borrowing and weak demand will continue to weigh on the Treasury market.
Although Treasuries rose on Thursday as fears over artificial intelligence (AI) trades and market turmoil in France drove a return of safe-haven demand, Sherman said the bounce from "oversold" levels has not changed the fundamental pressures facing longer-dated bonds.
"We remain significantly underweight Treasuries in most portfolios, and some portfolios are even short the long end of the yield curve," he said. He added that rising bond yields in markets such as Japan are intensifying the global competition for capital, thereby reducing overseas investors' demand for U.S. Treasuries.
Sherman also criticized U.S. Treasury Secretary Bessent's attempts to push down Treasury yields. "He used these very aggressive phrases, like 'I'm the house, I have information you don't know.' The market didn't react well to that," Sherman said. "If you want investors to buy in, you should give them more confidence, not try to humiliate us."
On the credit market, Sherman said that although he remains underweight the technology sector, he has begun "nibbling" on some debt after the recent market selloff. The credit risk of Meta Platforms (META.US) rose to a record high on Thursday, as plans to increase capital expenditure further heightened market concerns about AI-related borrowing. Bonds of AI cloud computing provider CoreWeave (CRWV.US) fell sharply last week amid growing worries about its debt-financed expansion.
"We're starting to nibble in hyperscalers and neoclouds," Sherman said. "When you put the factors together — 12%, 13%, 15% yields — and you think those yields can protect you from a bad outcome, then as a credit investor, that's exactly what you should be doing."
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