For the past 30 years bonds have had a bull market delivering strong returns, but this is beginning to faulter. Speaking to the manager of L&G Dynamic Bond Trust he seems to share similar concerns. He doesn’t feel that investors are being compensated for the level of risk they are taking, and, in many cases, bonds are offering negative returns.
As an example, he talked about UK Gilts, where investors are guaranteed to lose 17% over 10 years. But this doesn’t reflect that 60% of the market is bought and owned by LGIM and the Bank of England, both of which are reducing their exposure. Additionally, it comes at a time when the government is issuing more to fund spending and there isn’t the market out there that wants to buy them. He therefore feels that the fall in gilts over the next 10 years will be significantly greater than 17%.
In the US, Shahzad has concerns as well. Deregulation of the banks is likely to be implemented and this will be positive for the dollar and bank stocks. This will naturally benefit risk stocks but not US bonds….read more