Central banks are combating inflation, thus causing rising risks in the bond markets. "For asset allocation, this means cutting back on the bond segments with the greatest risks," saysCentral banks are fighting inflation, causing rising risks in the bond markets. “In terms of asset allocation, this means cutting back on those bond segments that face the greatest risks”, said Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM.

“While US bonds have already seen a steep rise in short-term yields, Europe is picking up more steam only now”, Gerlinger pointed out. With the Fed halting its bond-buying programme, the biggest US demand driver to date will be missing in the future. “The doubling of yields in the past three months is certainly due to the significant rise in inflation primarily and the more restrictive central bank policy”, Gerlinger added. It may well be possible that the rise in yields may continue toward recent highs of about 3.5 per cent. If there were to be an even more significant rise in inflation, however, an even stronger rise in yields cannot be ruled out entirely.”

“In our view, such a rise in yields to 3.5 per cent represents only a limited risk now”, Gerlinger said. “In absolute terms, US interest rates are attractive compared to other government yields.” Given the possibility of a weaker US dollar, however, the cost of currency hedging against the euro should be taken into account when planning investments.

Recently, spreads have widened in the US corporate and high-yield bond areas. Should economic data show positive news, such as an economic stimulus from China, declining inflation or falling yields, they would be narrowing again. Fundamentally, however, high vulnerability to rising interest rates or a significant deterioration in corporate data will remain in place.

With the yield on 10-year German bunds rising by more than 100 basis points in recent months, Europe still has a longer way to go. “The level is unattractive for investments”, Gerlinger explained. Peripheral countries saw an even stronger rise in yields. “In Italy, the yield on 10-year government bonds was over four per cent”, Gerlinger said. “There is a risk not only of a further rise in yields, but also of a resurgence of the euro debt crisis.“

In emerging markets, a weaker US dollar may make local-currency bonds look more attractive. In this segment, they are more attractive than bonds issued in hard currencies, which are suffering from rising interest rates.

Additional information is available at www.moventum.lu

Über Moventum S.C.A

Moventum Asset Management S.A. (Moventum AM) is a wholly owned subsidiary of Moventum S.C.A. Since 2019 Moventum AM manages Moventum’s own funds of funds and individual mandates as part of its asset management portfolios.
As an independent financial service partner, Moventum S.C.A. has been providing a home for financial service providers such as advisors and asset managers as well as institutional clients from all over the world for more than 20 years. The digital “MoventumOffice” platform offers access to more than 10,000 funds, ETFs and other securities. In addition, it allows financial advisors to open securities accounts for their clients, to place trading orders and to use analysis, reporting and support tools. Institutional clients are able to outsource their entire fund trading with complementary services to Moventum as part of collective or individual custody account management. A variety of fund services are assumed for asset managers, ranging from registrar and transfer agent services to fund accounting, company administration and domiciliation services.

Contact:

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Telefon: +352 (26154) 200
http://www.moventum.lu

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