Default rates are likely to increase from low levels

ON BONDS

Last year was quite a remarkable year for bond markets, with high levels of volatility pushing investor sentiment to the limit. As we turn the corner into 2012, macro risks will likely ensure further market turbulence.

The fundamental issue of too much debt in developed economies is still very much the key underlying problem. Macro uncertainty is pushing some areas of the bond market into uncharted territory. As a consequence, I start the year quite cautiously positioned in my portfolios. Gilt yields are probably too low at this time – it is not so much that I am worried about inflation, rather that I am concerned about gilts losing their safe haven status. Slower-than-expected fiscal consolidation or alternatively, serious risk of a coalition split could see the spotlight turn upon the UK, causing ...