Global bonds turned the corner
A benign outlook for equities and inflation globally augurs well for the global bond sector in the next 12 months, Robert Parker of Credit Suisse First Boston in London says.
Wednesday, November 24th 1999, 12:00AM
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Global bonds have experienced a bear market of 1994-proportions over the past 12 months, due primarily to central banks hiking interest rates, the Russian default and the collapse of a major hedge fund.
However, Parker believes the sector turned the corner in September and is now looking more rosy. On a comparative basis things look good because the outlook for other markets, such as the US sharemarket, look subdued.
Parker says there isn't a lot of inflationary pressure globally as the United States economy is slowing, and in Japan and Europe, where there is good growth, there are also large output gaps.
The impact of technology will be very deflationary too, he says.
Parker says investors in the past year, have tended to move away from bonds and to overweight positions in cash because of feared interest rate rises. However he expects, post Y2K, that there will be a move back to bonds.
While he is not predicting a major or large rally in bond markets, they will be positive over the next year.
Parker says international bond managers are broadening their horizons now that Euroland is functioning. He says the coming together of 11 European economies has produced one big bond market. The consolidation of those markets has removed arbitrage opportunities, as well as the chances to exploit currency movements.
For this reason managers are more likely to take an interest in the New Zealand market.
Parker says duration management hasn't provided many gains in the past year and that situation is likely to remain, however there will be better opportunities to profit from credit management.
Credit Suisse manage the Bank of New Zealand's global bond fund.
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