The investment wardrobe staple: global bond investing
July 2011
This year, white is the new black, Twitter is the new Facebook and, in financial markets, sickness is the new health. Rising above current trends, we believe that 'global' is the new long-term approach for bond investors, the investment wardrobe staple that will outlive contemporary fashions for many years to come.
Over the last two years, fixed-income investors have appeared beset by a myriad of concerns, including worries over Western currency weakness, the credit quality of 'risk-free' bond markets, and what will happen when central banks start to tighten monetary policy. The resurgence of the European sovereign debt crisis in June this year provided, we believe, a stark reminder that such issues will continue to permeate financial markets. Use of the U.S. federal government's debt ceiling as a political bargaining tool has seemed to unnerve investors even further, as their 'safe haven' retreats have appeared in danger of coming under siege. It could be said that bond investors face the four 'horsemen' of the bond apocalypse: inflation, default risk, monetary tightening and price manipulation by the authorities.
Eventually, current concerns may subside, but growing expectations of tighter monetary policy could prompt fixed-income investors to ask how best they should diversify current 'safe haven' assets. Worries about declining credit quality and the potential for (eventually) higher cash rates may affect the majority of developed markets. Furthermore, we believe investors are challenged by the fact that many countries would welcome a decline in the value of their currency.
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The investment wardrobe staple: global bond investing
