Why we should expect more bank volatility

ON BONDS

The effects of Europe's sovereign debt problems have been at the forefront of our decision making since the start of 2010, and continue to overwhelmingly dominate the bull and bear case for fixed income investors.

But there are reasons to be positive.  For example, earnings remain encouraging for bond investors. The general thrust has been to strengthen corporate balance sheets, to cut costs, maintain margins, and avoid undertaking aggressive equity-friendly policies. These themes remain intact. Take the insurance sector; non-life earnings have been strong on the back of lower catastrophe losses this year and the benefit of price increases on policies. Valuations are attractive for the medium-term investor, with the spread over gilts or bunds at or near its highest level in two years. Recent he...