Bond investors including Brandywine Global Investment Management and Wellington Management warn that the risk of a deeper Treasury rout is rising as Federal Reserve Chairman Kevin Warsh keeps markets in the dark about how officials will respond to the evolving economy. The Treasury market is signaling that Warsh's inflation-fighting credibility is eroding after he declined to outline plans to curb price pressures when policymakers left interest rates unchanged last week, and the New York Times reported he is considering reducing the frequency of scheduled policy meetings. In the absence of guidance, traders have piled into options bets that longer-maturity yields will keep climbing, with the 30-year Treasury rate at a 19-year high and German bond yields hitting a 15-year high on inflation worries. Portfolio manager Tracy Chen of Brandywine said she is holding less US bond exposure than her benchmark, warning that if inflation stays high and the Fed does not hike in September, bond vigilantes will react strongly. Three Fed officials who dissented against holding rates steady cautioned that waiting too long to act could force more aggressive moves later, while Warsh argued higher bond yields are already tightening financial conditions and questioned whether the Fed's preferred inflation gauge remains the right target.
AllianceBernstein Holding L.P. 
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