Industry Updates

The Big Call Radio: Huge risk of market volatility with bonds

Interest rates will rise in the near future, but central bankers are "very aware" of the 'huge risk of market volatility' should they raise rates too quickly, says James Butterfill, Head of Research and Investment Strategy at ETF Securities.

Butterfill made his comments on 'The Big Call', the new intelligent discussion programme looking at how you can implement the big investment calls of the moment.

Other contributors to the programme were Oliver Smith, Portfolio Manager for IG Smart Portfolios, Steve Goldin, CEO of Parala Capital, and David Stevenson, Director of ETFstream.

Stevenson argued that we shouldn't expect a bond market crash because "we're going to see interest rates probably below 2% in the US, UK and Europe for decades…I think the US Fed might just about get it [the Fed Funds rate] to one and a half or two, and then they'll run into recession and it'll go back to zero. They'll stop QE unwinding dead in its tracks because of volatility."

Butterfill added: "There's not any massive capital appreciation story for bonds right now. You should be looking at them as a kind of safe haven and something that will reduce volatility in your portfolio, not something you're going to make lots of money from, or even a fantastic yield."

Smith discussed how you could use ETFs to make money from bonds even if you think bond yields will rise significantly. Sadly several inverse bond ETFs have been withdrawn from the market, but you could put money in an ETF that invests in short-duration government bonds. Then if bond yields rise, you could 'recycle' the money at a later stage to a long-dated bond ETF.


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