Luca Paolini, chief strategist at Pictet, is less optimistic about the outlook for the global economy, but is also keen to own government bonds.
He believes that even at the current price, US government bonds are a “reasonably priced” way to protect a portfolio right now.
Chris Iggo, chief investment officer at Axa Investment Managers, said one of the market conditions which might have made bond prices fall was if Joe Biden became US president, and had also won control of the Senate, and was therefore able to launch an extensive government spending programme, which would involve borrowing more money.
This would be done by issuing more bonds, increasing the supply, and potentially causing the price to fall. The extra spending might also have led to higher inflation, which is bad for bond prices.
Mr Biden is still on track to win the presidency, however his hopes of securing the Senate have faded.
But Mr Iggo said a Republican Senate should protect the price of US government bonds in the current climate, offering protection for investors.
Tom Sparke, investment director at GDIM, a discretionary fund management firm in Cambridge, said: “I think bonds still remain an essential building block of client portfolios for a number of reasons. Firstly, the protection of government or other highly-rated bonds is essential in markets which are still skittish and in a time when surprises and especially disappointments (eg with COVID-19 vaccine news) are coming regularly.
"Secondarily, the income that can be gleaned from fixed income brings a valuable stream of yield that is not beholden to the daily ups and downs in stock markets and this provides further diversification.
"When we assess the high yield sector, the total returns from these assets have been very generous of late and have contributed equity-like returns with significantly lower volatility.”
david.thorpe@ft.com
