These bonds may rise again
Tuesday 13 February 1996
A cautious note is being sounded by a number of houses, including Goldman Sachs. Gavyn Davies, its chief international economist, told a conference of investors yesterday that he expected bond markets to top out within the next three or so months. While global economic conditions continued to deteriorate, bonds should make further gains. But once the economic slowdown hit bottom, that would mark the peak of the bond market rally.
Underpinning this view is an outlook for the world economy that is both pessimistic and optimistic. In the short run, the plunge in activity could prove steeper than expected, with the possibility of a recession in the European heartlands. A shake-out in excess inventories is the main villain of the piece. By mid-year, however, the effect of recent monetary easing should bring about a sharp rebound in activity, all the more potent for being synchronised across all three major trading blocs, the US, Japan and Europe.
The question is whether the medium-term outlook is so rosy. The US recovery is five years old, making it the third-longest expansion in the post-war period. The US Fed now seems increasingly concerned about the possibility of recession. In Europe, a sharp cyclical reverse coincides with a deep- seated structural crisis in the labour market. With unemployment high and rising, consumers may choose to save more, weakening demand further. In Japan, all stops have been pulled out to revive the economy, but deflationary impulses remain strong.
If the slowdown does persist into the second half of the year, then gilts may do better than is generally expected. An optimistic inflation projection from the Bank of England later this week and a subdued picture of retail price inflation could give gilts the fillip they need to start retracing the losses incurred over the last three weeks.
- 1 Moscow voted the world's unfriendliest city
- 2 The excuses your boss is most likely to believe when you call in sick
- 3 I'm pansexual – here are the five biggest misconceptions about my sexuality
- 4 More than 11,000 Icelanders offer to house Syrian refugees to help European crisis
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Senior British politicians tell David Cameron: When dead children are being washed up on beaches, it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don’t change Europe’s attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...
£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...
Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...