Ben Gutteridge (pictured), Head of Fund Research, Brewin Dolphin, on the U-turn of central bankers, and the international capital flow away from equities and into sovereign bonds…
Central bankers are currently undergoing a U-turn on their more hawkish (late 2015) approach as growth and inflation data continues to soften. The ECB has announced an expansion to its QE program, our own Mark Carney has kicked UK rate hikes deep into next year, whilst Japan has begun a surprise move into the unchartered world of negative deposit rates.
So far only the Fed has refrained from explicitly reversing course. This is surely, however, only a matter of time as the leading indicators (particularly souring company profits) point to a slowing in employment conditions. It is this confluence of policy adjustments that is driving international capital flow away from equities and into diversifying government bonds.
Indeed 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