Bonds – Patience is a virtue, preserving capital as markets adjust is a priority

2015 has been a difficult year for investors as markets have had to come to terms with a couple of important changes to the central banking status quo of recent years: 1) the Fed stopped easing and has turned its policy focus to when to raise rates, and 2) the PBoC has broadly allowed China’s slowdown to proceed rather than propping up the economy with aggressive policy support. Together with a global activity picture that has remained subdued due to still high levels of debt and ongoing business caution, and an aggressive commodity supply response to higher prices of earlier years. These changes have driven USD strength, commodity price weakness and emerging economy instability. Bond markets have been choppy – buffeted by falling headline inflation, changing expectations around the timing of Fed lift-off, the distortions generated by ECB policy implementation, and concern around reserve de-accumulation. In the latest edition of The Fix “Patience is a virtue” (VIEW LINK) Stuart Dear, Fund Manager, Fixed Income, explains that 2015 has made it clear that patience is required.