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Henderson chief says market is ripe for bonds despite a miserable month

Henderson director of fixed income John Pattullo says the months leading up to Christmas is the right time for investors to be bullish on bonds in the wake of the financial crisis.

Pattullo, co-manager of the Henderson preference & bond fund, says that despite the “miserable” past month, the state of the economy at the moment provides a favourable backdrop for bonds.

He says: “It is exactly the right time for bonds now but the bond market has been very poor over the last year and the last three weeks have been exceptionally poor.

“The valuations in the market are amazing and compelling but the sentiment in the market is awful.”

He is recommending that clients take their fixed-interest asset allocation up to a maximum between now and Christmas and says interest rates and inflation expectations are going to fall.

Pattullo predicts that interest rates in the UK will fall to below 4 per cent by the end of next year while European rates will be a lot nearer 3 per cent.

He says: “Recovery is not far away but what it really needs is for interest rates to come down. Inflation is falling, or has been, and ultimately there is a lot of rights issues and balance sheet repair going on.

“This is very positive for bondholders but still negative for shareholders.

At a time when everything is coming down you want to be getting locked into a fixed rate bond.”

Profile, p43

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