Leaviss: What does next 30 years hold for bond investors?

ON BONDS

Over the past 30 years, central banks have focused on targeting inflation, with the years 1981-2008 distinguished by the policies of Paul Volcker, former chairman of the Fed.

These policies, which were followed by most Western central banks, included setting interest rates above inflation. This meant real interest rates were positive. This was a good time for bond investors as yields fell in response to inflation-fighting credibility. However, we believe the behaviour among central bankers has been changing since 2008. Instead of worrying about inflation, central banks are now more concerned about slow economic growth, which elevates the unemployment rate and prevents governments from cutting their budget deficits. As a result, central banks have stopped c...