As the equity bull market continues to mature and the dollar trade looks less appealing, Choukeir is finding some mileage in government bonds, despite their multi-decade yield lows.
“Depending on their risk style, for a multi-asset investor we would still recommend government bonds as they have arguably more diversification benefits now than they did a few years ago,” he stated.
While it is unlikely government bond yields will shoot up by 4% to 6% and that the low growth, low return landscape will change anytime soon, he thinks yields do have the potential to grind higher because of interest rate hikes.
He said: “Government bonds are at multi-year, even multi-decade, yield lows, but we are seeing a retracement of that.
“The Federal Reserve is starting to hike rates and other central banks are going to start exiting the qunatitative easing phase too.
“This is very unique because in the last 10 years all central banks would talk about was continued easing.”
Still, “as an asset, it remains expensive relative to its own history,” he admitted.
On the other hand, Choukeir is not sure how much farther the risk assets rally has to go, an area which for the most part continues to look fully valued.
“We have to acknowledge we are in the second-longest bull market in equities in history,” he said.
“There is still value to be harvested and my preference is for European equities in some of the more distressed areas like financials.
“But I like equities to a lesser extent than I did a few years ago when the asset class was more attractive in terms of valuations.”
