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Bulls rush in after London bombings

US institutions took advantage of falling equity prices after the July 7 London bombings to switch billions of dollars out of bonds, pushing indices higher.

Iimia chief investment officer Nick Greenwood says, as a result of falling bond yields, US institutional managers had been waiting for a chance to switch money back into equities.

He says US institutional investors holding government bonds have seen yields driven down by mass-buying of bonds by pension funds looking to balance their liabilities.

Greenwood compares a running 4.1 per cent yearly yield on US 10-year government bonds and 4.3 per cent yearly yield on UK 10-year bonds with an 8 per cent average return on equities over the same period.

Following the bombings, the FTSE 100 fell by 200 points but rallied within 24 hours and has since risen above pre-bombing levels. Greenwood feels equities have been buoyed by the opportunism of US institutions.

Greenwood says: “Following a shock that should have reduced people’s risk appetite, we are finding that the FTSE is actually up, as people took advantage of liquidity in the market to shift into equities. Billions of dollars cannot just move without an opportunity and a number of US institutional managers found that the bombings opened the door for the switch of bond money.”

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