Every morning I get an email from Katie Martin.
She is consistent in pointing out that markets move against those who hold bonds for growth when the world is feeling nervous
Katie finishes as this blog starts. This is not about Keir Starmer. Bonds are in a freakout everywhere on the globe there is a bond market!
the personality politics really don’t matter that much. A bit, absolutely, but not lots.
I know I’m a broken record on this, but everyone calm down.
UK disaster tourists, tell me I’m wrong.
This bond issue is important. I’m telling myself “calm down“when I stare at the carnage of lifestyled DC plans that are buying them and selling equities.
I’m in one and I hate it – hate being told that I’m defensively invested when my retirement is disappearing in front of my eyes. I’ve been talking with Patrick Tooher of the Mail about this most of this week.
I’m tempted to blame Keir Starmer for wrecking my plans but I know it’s not. I’ve been told this by Patrick Tooher and Kate Martin! Edi Truell posted as much and is as consistent in pointing out that while bonds are paying great yields they are rubbish to hold for capital returns. This is the message I tell myself – and yet like most people of my age I’m investing for the next 30 years in bonds! I have it written on my heart!
“It’s nothing to panic about , just don’t let yourself be put into lifestyling bond funds!”
Yet I do! Why do I fall for the “bonds are defensive” when I know everyone I respect is right in staying invested in real assets!
It’s good to remind myself of sanity from Katie!
Join me on a magical mystery tour of headlines and factoids about weakness in the global government bond markets this week:
- “The US government has sold 30-year debt at a 5 per cent yield for the first time since 2007 amid mounting signs that Donald Trump’s war in Iran has unleashed a new surge in inflation.” Oof!
- Japan’s 10-year yield is now above 2.6 per cent. That’s comfortably the highest I can ever see it on my screen, ever. Its 30-year yield is getting close to 4 per cent. You read that right. The country that kept bonds in the deep freeze for decades is finally seeing some movement, and it’s up (for yields).
- German Bunds are yielding 3.6 per cent for the 30-years, the highest since 2011. The 10-years are also over 3 per cent.
I think you get the idea here. Bonds are being put through the mincing machine globally at the moment, primarily due to signs that energy-led inflation is taking hold. Central banks may have to start cranking up rates to deal with this, and that pushes up borrowing costs everywhere. This brings me to:
- Gilts are not happy. Ten-year yields are over 5 per cent, the highest since 2008. Thirty-year yields are also at 5.7 per cent — ouch!
Putting that point last demonstrates the UK is not such an outlier. Yes, the UK is experiencing one of its periodic political dramas. And yes, gilts have weakened substantially. Yes, this is bad. But is it all the fault of the politics? Far be it for me to play down the powers devolved to Andy Burnham, mayor of Greater Manchester and pretender to the top job in Downing Street, but as far as I’m aware, he has nothing to do with the Japanese government bond curve.
Clearly, some of the stress about gilts is overdone. That’s not to say they are not vulnerable. They lack the protections that some other major bond markets enjoy — the alphabet soup of European Central Bank protection measures in the Eurozone, the luxury of being the world’s dominant reserve assets in the case of US Treasuries, and so on. The UK economy has niggling inflation problems, which bond investors don’t like. And there was that whole Liz Truss thing.
Higher borrowing costs are indisputably unhelpful for the UK. But sterling is steady (around $1.35 or €1.15). You can put your tin hats away.
Politics are making a bad matter marginally worse, for sure. Politicians themselves could make it all much, much worse still. (If you are one, please read this.) Specifically, things that would make it worse would include a run-up (real or potential) in inflation, fiscal incontinence or loads of new borrowing. Other than that, the personality politics really don’t matter that much. A bit, absolutely, but not lots.