Hargreaves Lansdown head of research Mark Dampier has rejected concerns that we are heading for a bond bubble.
Dampier says there is no reason for bonds not to continue doing well in the short term, highlighting corporate bonds and high yield in particular.
He says: “Things may be a bit overpriced or underpriced but the term bubble is massively overused, both in this case and in general, as it implies that everything has gone completely mad. I have been told by a number of bond managers that gilts at 4 per cent are ridiculously priced and now we are at 3 per cent and I do not see why they could not go to 2 per cent.
“I expect a sub-par, continuation recovery, which is both boring and slow, and not back to 3.5 per cent GDP. In that scenario, bonds could continue to do well, particularly corporate bonds and high yield. I do not think that bonds offer superb value on a 10-year view but, for the near future, I would not get out of them.”
Demand for bonds has soared recently, with the Investment Management Association statistics for July showing that three of the five most popular fund sectors are bonds. The global bond sector topped the table with net retail sales of £360.9m.
Veteran UK equity income fund manager Bill Mott recently warned of a bond bubble that could rival the dotcom bubble of 2000 if fears of deflation in the economy prove unfounded.
He says: “Under these circumstances, holders of 10-year US government bonds on 2.5 per cent nominal yields and UK government bonds on 3 per cent nominal yields could suffer significant capital losses.”