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‘Bond bull is beginning, not a bubble’

M&G bond manager Richard Woolnough has rejected views that a bond bubble is forming.

At Cazenove Capital Multi-Manager Live, he said there are three characteristics that define a bubble in the bond market, with only one applicable at present. He said there has been a large increase in inflows into the sector but the recent performance history of the asset class and pricing of the market both go against the notion of a bubble.

“The asset class has to perform well for a number of years and that is the definition of a bubble, the returns for corporate bonds have been poor for the past three or four years as credit spreads have widened, coupled with lower inflation and interest rates. The asset class also has to look about as expensive as it has ever looked and it is arguably the cheapest it has ever looked. What we are looking at is the beginning of a bull market, the asset class is cheap before money flows in and assets start to rise. I think we are currently in that phase.”

Cazenove Capital head of multi-manager Marcus Brookes says: “I would agree with Richard for much the same reasons. There may be value but we have not seen this extraordinary outperformance.”

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