Are we facing a bear market in bonds?

FACING THE FACTS

Old Mutual Asset Managers' head of fixed income Stewart Cowley examines whether fixed income is in bear market territory, and gives his outlook for interest rates, credit risk, and currency markets.

Now that the macro panics of 2011 are receding, we need to come back and face some simple market fundamentals. For many, it is not appealing. Are we facing a bear market in fixed income? If so, how should we cope? The answer to the first question is a helpful ‘yes and no'. We are facing a bear market in government bonds but not in corporate bonds. Currencies are a third area offering positive opportunity. The way to cope is through effective asset allocation, adding to positive areas of the market and going ‘short' where values are falling. Let's look at the three areas of the fixe...