There’s no value left in the bond markets, fund manager says
- Many market players now believe that central banks will follow the Federal Reserve
- A rising interest rate environment is usually negative for bonds
A spike in bond yields and a clear change of direction from central banks means there isn't a lot of value in global bond markets, a fund manager told CNBC on Tuesday.
"There isn't a lot of value, to be honest (in the bond market)," James Athey, global fund manager at Aberdeen Asset Management, told CNBC.
"If this is and I say if because to some degree we've been here before and there have been false starts and false storms with central bankers and in the first sign of trouble they retreated into their foxhole, it looks to me like there's a concerted effort for that not to be the case here. And if we are therefore on a path towards some normalization in the rate complex many of these central banks that have had an uber easy policy it's difficult really to see a lot of value in the bond markets."
Despite being wrong on a few occasions previously, many market players now believe that central banks will follow the Federal Reserve and will slowly start to tighten their monetary policy, including the European Central Bank and the Bank of England. These benchmark rates help set the prices for a slew of global bond markets and loans, meaning that fixed income assets are very sensitive to interest rate moves. A rising interest rate environment is usually negative for bonds with investors instead opting for equities in a reflating economy.
On Monday, the two-year U.S. Treasury note yield hit its highest level since 2009 and finished at 1.414 percent. Bond yields move inversely to the price.
"There's some sort of technical things you can try and minimize the impact for example, so a lot of the fund trends are steep for that reason and therefore that steepness of the curve is quite good protection when interest rates are rising," Athey said.
Meanwhile, Bill Blain, head of capital markets at Mint Partners, said in a note on Monday: "Global Bonds: 10-(year) Treasurys were 2.45 percent in (January), and 2.31 percent this morning. 10-yr (German) Bunds were 0.36 percent in Jan and 0.46 percent this morning. 10-year (U.K.) Gilts were 1.42 percent in Jan and 1.28 percent this morning. Nothing to get stressed over."
"In short, it's been an up, down and shake it all about kind of year … There are clear signals of concern about what the withdrawal of 'extraordinary monetary policy' will mean. Normalization is seen as a threat by some, but by others as a very useful 'reset' to get markets back on a properly priced realistic track," he noted.