Flexibility to hedge out Government risks key to bond returns

The Bank of England's announcement to purchase £75bn of assets, predominantly gilts but also private...

The Bank of England's announcement to purchase £75bn of assets, predominantly gilts but also private sector assets, over the next three months, resulted in the largest one-day rally in the gilt market in over a decade. However, the ultimate impact of this easing remains far from clear, and the risks to investors associated with pursuing this policy are binary. If the Bank is ultimately successful in reflating the economy, they will have to withdraw the unconventional stimulus of purchasing gilts, at the same time inflation starts to pick up. This would be fertile ground for a rapid sell-o...