- Investors should buy Treasurys with debt-ceiling negotiations set to go down to the wire, according to a JPMorgan strategist.
- The Biden administration and the House of Representatives held talks about resolving the stand-off at the weekend.
- “They are running out of time… there’s just not that many days left to negotiate,” Alex Wolf told Bloomberg TV.
Investors should dump stocks and buy bonds because the debt-ceiling standoff may not be resolved in time to prevent a government default, according to a top JPMorgan strategist.
The Biden administration and Republican-led House of Representatives held talks about lifting the $31.4 trillion borrowing limit at the weekend – but time is running out for them to reach a deal, Alex Wolf warned on Sunday.
“They are running out of time, so to speak,” Wolf, who is head of investment strategy for Asia at JPMorgan Private Bank, told Bloomberg TV. “There’s just not that many days left to negotiate.”
“The best case scenario as of now looks to be some sort of agreement to postpone it, maybe a month, maybe two months, to continue negotiations – but it will likely go down to the wire,” he added.
Treasury Secretary Janet Yellen said earlier this month that the government could run out of cash as early as June 1, which she has warned would trigger an economic crisis.
That so-called “X date” is just 17 days away as of Monday – and Wolf said investors need to start preparing their portfolios for a potential default.
The strategist recommended selling stocks, which he believes now look overvalued due to their breakneck early-year rally, and loading up on lower-risk Treasury bonds.
“Given that we expect continued volatility, we are recommending hedging downside from an equities perspective, especially given that we have valuations that are so expensive, equities have rallied a lot more than anyone would have expected this year given the backdrop of rate hikes, inflation, and recession risk,” Wolf told Bloomberg.
“So we are recommending hedging and we are recommending Treasurys,” he added.
