How is it that traditional safe haven assets like gold, government bonds and the Japanese yen are all performing strongly this year, just as risky assets like equities, credit and emerging markets are also doing very well?
Liquidity is one of those things that doesn’t get much focus until it’s too late.
2019 has so far been a stellar year for bond returns globally. Even a simple passive exposure to long dated bonds has delivered handsome profits that far exceed the average yield of those bonds.
And it’s what’s driving the disconnect between bond and equity performance in 2019.
Despite bond yields in many markets getting vanishingly low, inflows to bond funds globally have actually accelerated this year.
With global bond yields back near the low end of recent ranges, it’s an opportune time to revisit a theme that’s relevant to portfolio construction today – the bond vs. equity correlation.
With yield chasing capital flooding back into credit markets and pushing up bond prices, the behaviour of corporate bonds is changing.
Conventional thinking about bond-equity relationships currently poses a paradox – the resolution to this seeming paradox is the changing bond-equity correlation.
One way to profit from interest rate volatility is to get directional calls right, ahead of a large move in rates. Sadly, we have yet to come across anyone who has been able to consistently get these directional calls right.
In this Nestegg podcast, Gopi Karunakaran speaks with host David Stratford about the current spotlight on the fixed income markets and the importance of a balanced portfolio.
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