Just 1% of Bond Investors Dodged Mistakes That Sank Rivals

The bond market humbled Wall Street’s best and brightest in 2022. Oblivious to what lay ahead — the most-aggressive interest rate hikes in decades — one bond fund manager after another was saddled with heavy losses.

Except for Scott Solomon and William Eigen.

Of the 198 bond funds in the US that actively manage at least $1 billion, the ones they oversee — the T. Rowe Price Dynamic Global Bond Fund and the JPMorgan Strategic Income Opportunities Fund — are the only two that have managed to record a gain this year.

Their formulas for success were similar. Both men detected the flaws early in the inflation-is-transitory argument that swept across trading floors and, as a result, managed to shield their portfolios from the full fury of the Federal Reserve’s tightening cycle. Solomon, who co-manages the T. Rowe fund with Arif Husain in London, used derivatives that made money and protected the portfolio as rates rose. Eigen unloaded risky bonds and plowed the proceeds into cash.

And now, just like at the end of last year, these bond managers see their rivals committing a crucial mistake. This time, they say, the error is interpreting evidence of cooling inflation as a sign the Fed will begin looking for opportunities to lower rates shortly after it’s done raising them, to avert a deep recession. That sentiment is what’s driven much of the rebound in Treasuries since early November.