2008 anxiety sparks flight to safe havens and bond price highs

ON UK INCOME

Despite surviving the recent downturn, many investors are still anticipating another disaster, writes Rathbone's George Viney

Investors have 2008 on the brain. Having survived a disaster, they naturally anticipate another and seek safe havens. Central bankers are no different – keen to avert recession through low interest rates and quantitative easing. The consequence is a herding into bonds, resulting in skinny yields. Bond prices are even more extreme versus some equity valuations. Given the stability and quality of their cashflow generation, we think of equity of businesses such as BAT and Diageo almost as high-grade perpetual bonds. Their free cashflow (FCF) is roughly equivalent to annual interest payme...