Henderson director of European equities John Bennett believes fixed income investors are likely to face a stealth bear market and a possible collapse in bonds.
Speaking at the Fund Strategy Investment Summit in Kitzbuhel last week, Bennett said there has been an “outrageous party” in fixed income over the last few years.
He said: “Unless we get deflation these holdouts in fixed income, whether it be sovereign or corporate, are doomed.”
Bennett cited a number of points in 2012 when yields on certain markets instruments hit notable lows. This included a 220-year low of 1.45 per cent on 10-year US treasuries on 1 June 2012 and the 320 basis points spread between European dividend yields and German bund yields, which is an all-time high.
Bennett said: “History has told us that if you buy fixed income at these yields you tend to get crushed and governments are historically in the business of robbing us and they’ll rob us either by direct taxation or through inflation.”
Bennett said investors who treat the asset class as a safe haven could be in for a shock.
He said: “We really did hit extreme levels in bond market in 2012. If the Japan deflation scenario happens globally then these yields are fine but I think governments are desperate to try and get inflation into the system at a time when pension funds and insurance companies are being told by their regulators to buy bonds.
“It is history repeating itself, they are corralling institutions and private investors into these sectors and then they will rob them.”
Hargreaves Lansdown head of research Mark Dampier says: “If you play a five year game in bonds he is probably right. I would agree there is no value in sovereign and largely in corporate – though there is some value in high yield. I would not trust the UK or European governments because they will rob investors whether it be through stealth tax, Funding for Lending or not indexing allowances. By 2015 there will be nearly six million people paying 40 per cent tax. The Government is slowly pick pocketing us.”