Equities will outstrip gilts over decade
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Government bonds will only offer “negligible” returns over the next ten years forcing markets to turn to equity investment.
According to Barclay’s Equity Gilt Study, while the outlook for equity returns “is not exactly inspiring, particularly over the next half decade”, it says they are a good deal better than the prospects for bond markets.
It says an aging populations in the Western world will mean shrinkage in the high savings population and an expansion in the retiring population.
Barclays Capital head of global asset allocation Tim Bond says: “This will alter supply demand dynamics in the debt capital markets in a profoundly negative manner”.
The report also predicts that an ageing trend will ultimately lead to an explosion in government debt over the long run as more pressure is put on health systems, state pensions. It says: “This is likely to cause a sustained deterioration in primary fiscal balances and a continuous increase in government debt to GDP ratios.”
The report surmises that for the advanced G20 economies, the government debt to GDP ratio is projected to rise from 100 per cent in 2010 to 150 per cent in 2030. Over the subsequent 20 years, debt ratios for these countries are anticipated to rise further, increasing to 275 per cent of GDP by 2050.
Bond says: “The era of low and stable long-term interest rates is over. According to our demographic bond models, long-term government yields in both the US and UK are set to more than double from current levels over the next decade, moving up to around 10 per cent by 2020.
“Under such circumstances, total returns from government bonds are likely to be negligible over the next decade.”
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