Pressured by structural forces over the past decade, global bond markets have been approaching low, zero, or negative yields, and their safe-haven utility inside portfolios also has steadily diminished. Bond investors seeking both yields and safe-haven protection are discovering an alternative in China’s sovereign bond market.
An allocation to global bonds can produce superior returns and provide diverse sources of alpha. Active global bond investors have an intrinsic advantage due to an expanded opportunity set. Investors who focus on government bonds in a single country are limited largely to binary duration decisions, while global managers capture much more complex relationships. By allowing managers to invest globally, investors diversify their source of return and, in our view, allow greater potential for outperformance.
The pandemic may have put the global economy into unknown territory, but tailwinds to growth are gathering. In his third quarter review, Francis Scotland explains how the accumulation of rate cuts, the lagged influence of falling bond yields, increases in household net worth, and cheap energy imply a gradual rise in bond yields and steepening of the curve.
Francis Scotland recaps the year to date and looks at the big macroeconomic issues that will affect the evolution of the business and liquidity cycles over the next one to three years.
