Investors take note: review portfolios as global bond surge mirrors 2008 crisis

By Newsdesk

December 01 2023
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Investors are being urged to scrutinise their investment portfolios as the global bond market experiences a rally not seen since the 2008 financial crisis.

Nigel Green, CEO of a leading independent financial advisory, asset management, and fintech organisation, advises that with the surge in sovereign and corporate debt reaching 4.9% this month – a dramatic increase reminiscent of the 6.2% jump in December 2008 – it’s time for investors to check if their portfolios align with their risk tolerance and return objectives.

Explaining the rapid increase, Green noted, “This rapid jump is attributed to growing speculation that central banks, led by the US Federal Reserve, have largely concluded their interest rate hiking cycles.” This belief that rates may stabilise or decline has driven investors towards the relative safety and yield of bonds.

However, Green cautions that investors with heavy fixed-income security allocations may face diminishing returns as yields trend lower. “Investors must carefully reassess their fixed-income portfolios to ensure they align with their risk tolerance and return objectives in this shifting environment,” he stated.

The market environment also poised to impact equity markets and risk appetites, Green observed, “As interest rates stabilise or decline, the appeal of higher-yielding assets, such as dividend-paying stocks, will rise.” Conversely, he pointed out that sectors favored by rising rates, such as financials, might struggle.

This upswing in bonds comes at a time when the 'search for yield' continues to be a persistent challenge. Safe-haven assets yielding lower returns are pushing investors towards riskier investments for better yields, as highlighted by Green, “There’s legitimate reason to explore riskier investments in pursuit of higher yields.”

Adding to the narrative are the recent comments of two US central bank officials, previously advocates for increased rates to quelch inflation, who signaled contentment with the holding of interest rates steady. This prompts stronger beliefs among many experts that the Fed, and potentially central banks in the UK, the eurozone, and elsewhere, may pause rate increases.

Green concludes by emphasising the need for investors to adapt, saying, “The current surge in global bonds, reminiscent of the 2008 financial crisis, signals a significant shift in the monetary policy landscape. For investors around the world, this trend requires a careful reassessment of investment strategies across asset classes.”

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