Bonds
The second slightly positive thing to take from all of this is the implications the moves have for the bond market. The chaos in China and the global rout that was the result, have shaken consensus about the timing of a rate hike in the US, which many thought would likely occur in September.
As TwentyFour Asset Management’s Mark Holman explains, a postponement of the first hike in the US could be a good thing for bonds – especially because the recent rout was caused not by worries about companies or countries ability to pay their debts, but rather about growth.
“From a fixed income standpoint, low growth, low inflation and low interest rates is a “goldilocks” scenario…The risk for fixed income is not lower growth, but a change of these ideal conditions.
While not unaffected by the recent market volatility, Holman says that with a positive correlation to equity, credit spreads have moved in the opposite direction to Treasuries.
But he added: “It has been sentiment and correlations that have caused these moves, and nothing to do with solvency, so we would describe the magnitudes of the moves as being about right, and not a panic.”
And, he said: “Further back-ups in yields from growth related concerns should be viewed positively from a fixed income investor’s standpoint…we might even be the beneficiary of rotations out of stock markets, strangely enough.”
Gold
The third and final slight positive has been the performance of gold this month. While it has fallen in the past two days from $1,162 to around $1,123 today, it is up for the month today, having begun August at $1,095.
Indeed, a quick look at the Investment Association’s fund universe shows gold funds feature pretty prominently in the lists of funds that are actually up in the month of August – as can be seen in the table below.
| Fund | Performance month to date |
|
City Financial Absolute Equity in GB |
6.24 |
| Investec Global Gold in GB | 5.55 |
| WAY Charteris Gold & Precious Metals in GB | 5.06 |
| Baillie Gifford Active Long Gilt Plus TR in GB | 4.45 |
| Old Mutual Blackrock Gold & General in GB | 4.18 |
| Smith & Williamson Global Gold & Resources in GB | 3.77 |
| Baillie Gifford Active Index-Linked Gilt Plus TR in GB | 3.64 |
| JPM Multi Asset Macro in GB | 3.56 |
| Baillie Gifford Active Index Linked Gilt TR in GB | 3.43 |
| Blackrock Institutional Bond Over 15 Year Gilt TR in GB | 2.99 |
Source FE Analytics
That is not to say, of course, that the yellow metal is about to embark on a new, sharp upswing but there are definitely short term reasons to expect it to hold its own.
As Natixis points out in its latest Commodities Strategy note: “For the near term, we are seeing support for gold prices from: Expectations that a rise in interest rates will take place in September have dropped. Looking at the interest rate probability according to the futures Fed fund, 13 August was showing 50% for September but is now down to around 32%; Uncertainty and sharp drops in the equity markets are leading to safe haven flights into gold.”
