Newton IM’s Paul Flood weighs in on record yields on the implications on the bond market

Paul Flood, multi-asset portfolio manager, Newton Investment Management:

“With US 10-year government bonds now yielding more than they have at any time over the last decade, returns for bond investors are rising, at least in nominal terms. However, with inflation remaining above expectations, and recent US CPI reading of 8.6%, real returns still aren’t that attractive and central banks remain under pressure to raise pace of interest rates increases.

“This is resulting in bond market weakness and a knock-on effect to equity markets as investors remain concerned that policy measures result in pushing the economy into recession, which could result in inflation coming back down to the central bank target. With bond yields in the US market on the rise and now at the highest levels in a decade, we have begun increasing our exposure to the asset class.

“We haven’t seen these levels on the US 10-year government bond in over a decade (April 2011).”

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