Will investors continue to buy bonds at any price?

The notion of value is often discussed by fund managers but rarely followed. Despite low valuations investors will still buy assets, especially if they are being driven by new information. Take the yields on European government debt. The assumption peddled by euro officials and supported by declining inflation expectations (principally the oil price) is that you need to buy bonds at whatever level they are on offer. Value doesn’t come into it. This is also having an effect on the surrounding markets.

One market that hasn’t really joined in the move to extreme values has been the US. Strong growth and a hawkish Federal Reserve has kept yields relatively high. For the US to join the party the market needs the news that US rates will not be going up in 2015. This would put the nail in the coffin of one if the big consensus trades of 2014 – being short the front end of the US curve and there would be a big squeeze.

Paul Brain, Newton

 

 

The notion of value is often discussed by fund managers but rarely followed. Despite low valuations investors will still buy assets, especially if they are being driven by new information. Take the yields on European government debt. The assumption peddled by euro officials and supported by declining inflation expectations (principally the oil price) is that you need to buy bonds … read more

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Can central bankers keep the party going in 2015?

Equity markets have generated much lower returns since the turn of the Millennium than those investors had become accustomed to prior to the year 2000. Initially high valuation, based on the hope of the ‘TMT’ boom, challenged prospective returns. By 2007, exuberance had transformed into the belief of an earnings ‘boom without bust’ as demand persistently outstripped expectations. Now equity indices rest heavily on the belief that central bankers are able, and will act, to do ‘whatever it takes’ to sustain high asset prices.  Could 2015 prove to be a year where actively choosing to do something different from market indices pays dividends for investors?

Peter Hensman, Newton 

Equity markets have generated much lower returns since the turn of the Millennium than those investors had become accustomed to prior to the year 2000. Initially high valuation, based on the hope of the ‘TMT’ boom, challenged prospective returns. By 2007, exuberance had transformed into the belief of an earnings ‘boom without bust’ as demand persistently outstripped expectations. Now equity … read more

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Energy companies on hot coals?

The Carbon Tracker Initiative May report1 (in follow-up to its initial 2013 report 2)  has given a new head of steam to the lively debate ignited in the oil and gas industry by drilling down into the balance sheet reserves of major international oil companies and putting together a ‘carbon supply cost curve’.

Investors too are now becoming very engaged in the debate. The oil and gas sector has struggled in recent years to generate a reasonable rate of return, even with oil prices of over $100. This, and the threat of related assets becoming stranded, has prompted investors to ask oil company executives tough questions. Some investors have even gone so far as to wonder whether explicit exclusion of the oil and gas sector from their portfolios is now a realistic option.

Sandra Carlisle, Newton.

1Unburnable carbon 2013: Wasted capital and stranded assets.

2Carbon Supply Cost Curves. Evaluating financial risk to oil capital expenditures.

The Carbon Tracker Initiative May report1 (in follow-up to its initial 2013 report 2)  has given a new head of steam to the lively debate ignited in the oil and gas industry by drilling down into the balance sheet reserves of major international oil companies and putting together a ‘carbon supply cost curve’. Investors too are now becoming very engaged … read more

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