2014 has, so far, been an extraordinary year for bonds. Coming into the year the consensus was to be short bonds and for equities to outperform. In fact the opposite has happened. More recently, a big deflationary pulse has caused sovereign bonds to rally strongly.
John Pattullo briefly explores the drivers of this; mainly the fear of lack of growth and lack of inflation, really in Continental Europe but especially in Germany, while the American markets seem to have seized on this and sold off. In this environment of low growth, low inflation, muted volatility and very low defaults, he feels that carry (yield) will continue to be the dominant bond investment strategy.
John sees pockets of volatility as a necessary evil as valuations re-adjust; and as valuations come up he expects to add a little risk to his portfolios coming into the year end.
Nothing in this video is intended to or should be construed as advice.