Government bonds were one of the only reliable portfolio diversifiers when equity markets crashed earlier this year, but they now face several pressing questions. Are they too expensive, and will they still work in the next sell-off? What will the future hold for bonds more generally?
Mike Riddell, manager of the Allianz Strategic Bond fund, has successfully navigated recent bouts of volatility by taking a flexible approach to fixed income. In this interview, he tells us what the future might hold for the asset class and where he sees value (and risk).
The discussion covers some of the big issues facing bond investors. A closer analysis of Mr Riddell’s fund and his recent activity can be found here.
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"Hunting the natural rate"
The natural rate can be defined as the real interest rate at which output is at its potential level and at which inflation is stable. Right now, central banks want actual rates to be below this rate, in order to boost output and raise inflation. Hence the question: what is the natural rate?
Many investors’ portfolios should have an allocation to assets other than equities for diversification. And with cash rates so low bonds can be a useful component in income portfolios.