The threat of higher interest rates has been a persistent theme in the last few years that has many investors running scared from bond markets, but Fidelity Investments’ David Wolf doesn’t frighten simple and easy , isn’t ready to join the fleeing crowd just yet.
Worst bond crash in almost 3 decades is early warning of turmoil to come
The global deflation trade is unwinding having a vengeance. Yields on 10-year Bunds blew through 1 per cent this week, spearheading a violent repricing of credit over the world\’s financial system.
On the contrary, the previous adviser to ex-Bank of Canada governor Mark Carney continues to find relatively value in bonds and sees little reason to think the much-maligned asset class is set for a precipitous fall in what remains a really low interest rate environment.
“The day may come when it makes sense to abandon bonds,” he said in a new commentary now. “But today is not that day. And tomorrow looks pretty unlikely too.”
Instead of rising higher as numerous people have predicted, rates of interest around the world have stayed steady as well as fallen in some instances over the past 12 months, leading to mostly positive bond returns in several countries.
The main Canadian bond index, for example, is up near to five per cent since over the past 12 months, beating increases of the country’s primary equity benchmark the S&P/TSX composite index, which has fallen nearly four percent over the same period.
Wolf is confident that rates will stay in a range well below what\’s “considered normal” and regardless of the recent increase in bond yields is happy to invest in bonds rather than cash for the defensive areas of the multi-asset portfolios he co-manages.