(Bloomberg) -- Investors are “better off for now” in short-duration debt as the bond market has failed to price the risk of higher interest rates, according to David Bianco, the chief investment officer for the Americas at DWS Group, which holds about $1 trillion in assets under management.

Treasury bills as well as two- and three-year notes from the US government make sense to hold as the market hasn’t priced the Federal Reserve’s policy rate reaching 4%, he said in an interview Friday with Bloomberg Television. 

Fixed-income markets have been battered as traders try to map out the Fed’s policy path to tame inflation and concern over a US recession creeping in. Still, money markets see the key rate peaking just above 3.5% around the end of this year or early next year, swap contracts tied to Fed meeting dates show. 

“Investors should be careful with bonds,” he said. “Look for inflation-protected bonds, hold on to cash and then look for real assets, whether it’d be stocks or real estate or utilities.”

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Some money managers had turned to buying longer-term US government bonds as a broad gauge of Treasury market volatility, the ICE BofA MOVE index, has come off a peak reached earlier this month. 

Even then, it’s still near the highest since 2009, as traders reassess the prospects of tighter monetary policy. Just last week, after data showed June inflation increased more than expected, swap contracts tied to the Fed’s July meeting priced the first full-point hike since the 1980s. Then, those wagers were pared back to price in a 75-basis-point increase later this month. 

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That same uncertainty over global growth has upended riskier assets, from stocks to credit and commodities -- all while propelling relentless dollar strength. A gauge of the greenback reached a record high last week, as its gained versus nearly every major currency tracked by Bloomberg so far this month. 

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“It’s a tough thing to adapt to --  not the S&P 500, not banks -- but the rest is a very global set of businesses and they’re facing foreign-exchange rates,” he said. “I do like the banks for the brave of heart,” adding that smaller companies, which have been “beaten up,” should benefit more now as they’ve been held up by globalization in the last two decades.

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