Will Bonds Continue their Stellar Run?

The impressive returns of bonds have resulted in returns more akin to shares over the past decade. However, interest rate rises could reduce their level of attractiveness.

Some bond fund managers have switched to "short-duration" bonds in response as they are less susceptible to interest rate changes.

John Pattullo and Jenna Barnard of the Janus Henderson Strategic Bond fund are taking a contrarian viewpoint.

They assert that the common expectations of mainstream economic theory of economies growing too fast and inflation and interest rates increasing is not likely in their view. Japan is held up as an example of the type of low inflation, low growth environment that could eventuate.

According to Henderson, the behavior of consumers has changed in relation to debt and spending. The Japanese example is instructive here as low interest rates did not encourage borrowing & spending, people preferred to reduce their debts instead.

The baby boomer generation is gradually retiring and millennials are sharing and renting which both reduce demand.

In addition to these factors, technological disruption is reducing the prices of goods and services.

The world economy is growing, but inflation remains low.

As a result, the Janus Henderson Strategic Bond fund is investing in large companies which offer longer-duration bonds, as they do not believe that a large amount of inflation is on the horizon.

If interest rates do indeed rise as many predict, however, bond funds may become less attractive.

Westminster Wealth Management can assist in helping you to navigate your financial future, and expert advice is valuable in complicated times just as much as in simple ones. Contact us today.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.