By Tomo Uetake
TOKYO (Reuters) - Even though the Federal Reserve is expected to raise interest rates, long-term U.S. bond yields are unlikely to rise due to China's slowdown and negative rates in Japan and Europe, the top fund manager of Invesco Ltd's (N:IVZ) $240 bln global bond funds said.
Gregory McGreevey, Atlanta-based CEO of Invesco Fixed Income also said most U.S. bonds are no longer cheap but still many of their valuations are at fair value.
"We see slowing growth in China and emerging markets and a modest growth in developed economies. We think that backdrop will keep interest rates quite low for a longer period than most people in the market anticipate," McGreevey told Reuters in an interview.
Expectations that the Federal Reserve will consider raising interest rates next month have risen after minutes from the bank's previous policy meeting showed many policymakers felt the U.S. economy could be ready for another interest rate increase in June.
"We think that even if the Fed were to raise interest rates on the short-end curve, that wouldn't have much of an impact on the longer end of the curve," he said.
But McGreevey also said they are no longer cheap after price gains since March.
"Over the course of the month of April and May, we saw pretty significant improvement in price, so they went from being 'cheap' back in March to being 'fair valued' today. We have changed our view of U.S. valuation from 'positive' to 'neutral'," he said.
While the overall bond market is challenging due to very low or even negative yields, there are pockets of opportunities, he added.
"We still like parts of the U.S. investment grade market, despite valuations and fundamentals, because of the very strong demand we continue to see for those particular products," he said.
European corporate bonds also look good because of support from buying, due to start next month, by the European Central Bank.
On the other hand, he said the asset manager is negative on U.S. agency mortgage-backed securities.
"From our standpoint, we see valuations being very, very rich, the spreads continued to have tightened over the course of last couple of months," he said.
McGreevey, who was in Tokyo to meet clients, also said he expected Japanese investors to eventually diversify their investment outside corporate bonds to high yields, bank loans, structured products and other riskier assets.
Invesco had more than $770 billion in assets under management as of March 31.