Bond Outlook [by bridport & cie, October 7th 2009]
| The scenario of slow growth and prolonged low-interest rates is now very widely accepted. The debate now is partly about how long the period of flat growth will last, and whether there is still another down leg to come. Our sense is that the conditions for inflation are in place because of the excessive printing of money in so many countries, but that the current deflationary climate looks like having a longer life that we first imagined. It is as if the bend in the L-shaped recession came earlier than we forecast, but the probable shift from deflation to inflation has been put off by several months into the future |
| Credit risk remains high for the (low) corporate spreads now available. We had some satisfaction in attending a lecture at Harvard Business School on asset allocation, during which the professor concluded, as we have, that the best buy at present is inflation-linked Treasury bonds, but with the full recognition that they are long-term holdings and that investors might have to ride out some short-term volatility. |