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Henderson’s Pattullo: Central bank promises are inflection point for markets

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Henderson head of retail fixed income John Pattullo says recent actions by central bankers Ben Bernanke and Mario Draghi are an inflection for global bond yields.

Pattullo – who has added more risk to his stable of funds – says the decisions made by both the US and European banks to support quantitative easing has resulted in a risk-fuelled, liquidity rally which he expects to continue, with pockets of volatility, until Christmas.

Earlier this month, the Federal Reserve launched a third round of QE through purchases of mortgage-backed securities. The injection has no limit and will continue until the labour market improves. Meanwhile, European Central Bank chief Mario Draghi unveiled an unlimited bond buying programme to save the euro.

Pattullo says: “This has to be an inflection point for markets. Given the ridiculous, extraordinary and frightening amount of stimulus central banks are now throwing at markets if this isn’t an inflection point I’d be pretty worried.”

Pattullo has introduced a 10 per cent long risk position in the iTraxx crossover, a derivative which increases exposure to the European high yield market, across the £1bn Strategic Bond, £605m Preference & Bond and the £770 Fixed Interest and Monthly Income funds. The move marks a 20 per cent swing from a -10 per cent short credit derivative position in the funds.

He says: “We chose the iTraxx as it trades £5-10bn a day and is incredibly liquid. It also allows us to add risk generically.”

Pattullo has also moved from 10 per cent short duration on gilt futures, having previously held a 10 per cent long position. He says the move has lowered the duration on the funds from about 5.7 years to 3.7 years.

He says: “We have gone to more pro-growth and credit risk and less interest rate risk in the past four weeks.”

Hargreaves Lansdown head of research Mark Dampier says: “Further QE was already anticipated by markets but the fact it is unlimited has acted as a boost. I’d agree that markets will rally until Christmas.”

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