"Is 'Selling America' Trade Reemerging? Australia’s Second-Largest Pension Fund Cuts Holdings of U.S. Bonds"

Jimmy Louca, senior portfolio manager at Australian Retirement Trust, stated in an interview that the fund is reducing its holdings of U.S. bonds through its dynamic asset allocation strategy. The fund manages AUD 330 billion (approximately USD 216 billion) in assets.

"From a cyclical perspective, the Fed is in an easing cycle, but fiscal-related concerns are posing risks to the long end of the curve," Louca said. "From a structural perspective, if the U.S. adopts aggressive fiscal spending policies while the Fed leans toward maintaining full employment, this policy mix will create stronger inflationary pressures."

In fact, Australian Retirement Trust’s shift away from U.S. Treasuries reflects a broader trend of large institutions, including some Asian pension funds, reassessing their allocations to U.S. assets.

The growing threat to the Fed’s independence has prompted warnings from some economists. They argue that while short-term U.S. Treasury yields may decline, interest rates at the long end of the yield curve could rise sharply, undermining the White House’s hopes of alleviating U.S. debt repayment pressures.

Louca, who previously led the macroeconomic team at the Queensland Treasury in Australia, stated that Australian Retirement Trust has taken profits from curve-steepening trades involving 2-year and 10-year Treasuries. He now believes U.K. gilts and Australian government bonds offer better value.

He noted that if you look at Australia’s situation, the country is more focused on fiscal consolidation. Australia’s two engines—mining and real estate—are also not as strong as they once were. Louca also believes the market has "overreacted" to recent surprises in U.K. food and energy prices, and U.K. gilts remain attractive.

He said, "Some might say 'don’t fight the Fed,' but you can’t fight the White House at the same time. We have to respect the policy mix coming out of the White House—arguably, these policies are driving the U.S. dollar lower."