Bond returns likely to confound the skeptics

Global bond returns have been particularly strong over the last 2-3 years. In our view, central bank policies have been driving bond yields lower. Large-scale asset purchases in the US, Japan, Europe and, most recently, the UK have been reducing the supply of the highest quality pools of liquidity: government bonds. At the same time, increased liquidity requirements for banks and negative interest rates have created greater demand for government bonds, particularly those with positive yields. The implication of unconventional monetary policy becoming conventional is that bond yields are likely to stay low, and bond returns can continue to confound the skeptics. (James Alexander, Co-Head of Global Fixed Income & Head of Australian Fixed Income)