The dog that has(n't) barked

After a brief history lesson in the descent into chaos of the bond market and demonstrating UK RPI Inflation falling from 26 in 1975 to 1% in 2016 coupled together with UK interest rates falling from 17% in 1980 to 0.5% in 2016 explains why we have had a 25+ year Bond bull market with 10 year gilts failing from 12% in 1990 to just 0.75% in 2016.
Since 1989 the real yield are often negative as well as absolute yields. Two of the most common solutions for the global hunt for yield are one to go long dated- but most yield curves are very flat credit and with its perils of duration. The other is to go longer which also has problems – spreads historically low, credit rate deteriorating, low default rates and long cycle.
Andrew succinctly summarised the moral of the story-
• Mainstream bond markets look overvalued in an historical and a fundamental context.
• Their technical and fundamental underpinnings look set to deteriorate over the foreseeable future.
• Yields therefore look set to rise materially: the bull market is over
• So, bonds have significant downside risk, in total return terms.
• They are NOT, therefore, a “safe” asset.
• Investing in a world of rising yields requires a different strategy
Finally investors should look for protection especially from duration risk and options suggested:
Short Dated Sterling Investment Grade
Inflation Linked
Variable Coupon Bonds