Questions of policy error
This has also led to questions of policy error in the US and a softening of the hawkish stance seen within the Bank of England, the Bank of Japan and The European Central Bank. A softening of positions that has not had nearly as much of an effect as previous such moves.
As Mark Dowding, partner & co-head of investment grade debt at BlueBay Asset Management pointed out: “Developments in financial markets over the past week continue to highlight a sense of vulnerability and tumult with the rally following the surprise Bank of Japan (BOJ) easing, evaporating even more quickly than the European Central Bank (ECB) bounce had the week before.
He added: “Notwithstanding dovish central bank intervention, both the Japanese and European equity markets have continued to fall, with the Yen and Euro appreciating amid scepticism surrounding the efficacy of these actions
For Ben Gutteridge, head of fund research at Brewin Dolphin it is this confluence of policy adjustments that is driving international capital flow away from equities and into diversifying government bonds.
In fact, he said in a note out on Monday, that the “loud proclamations that duration has lost its hedging capability are misguided.
“In the face of an economic downturn, deflation or a stock market sell-off, developed market sovereign bonds remain a compelling proposition.”
Gutteridge added that the way the Brewin’s team are expressing this view is through the Vanguard Global Bond Index fund, which he says, has the added appeal of an unhedged strategy with significant dollar and yen exposures.
Two currencies he expects to perform well against sterling
It is not, however, only sovereign bonds that are regaining some of their lustre. Gold, which has been much derided of late has done remarkably well in 2016 so far. Currently, it is trading at around $1,195.26 which is an eight month high.
