Volatility – Feature


BONDS ARE BACK


Bonds were in the firing line after the mini budget, but events have unravelled fast and they are likely to come out stronger as a result, says Andrew Holt.


ing years of quantitative easing. And not only in the UK,” he says. The only member of government making this valid point was Jacob Rees-Mogg, who many saw as trying to pass the buck with such analysis, and, therefore, this went by relatively unno- ticed by the press.


Shaken and stirred But while the markets may have shaken and stirred gilts, the situation could be said to have resulted in one in which bonds are on their way back. This may seem a surprising claim. Especially when looked at from another direction, which does not reflect well specifically on corporate bonds: in which highly rated paper issued in ster-


ling have posted a negative total return of around 25% this year, as measured by the ICE BofA Sterling Corporate index – making it by far the largest loss in the index’s almost 26-year history.


In comparison, a similar index tracking US-dollar bonds is down 18%, while one following euro-denominated bonds has lost 15% on a total-return basis, which includes price changes and interest payments. From these numbers it could be argued that – like the song used when New Labour swept to power in the 1990s – things can only get better. But instead, Dan Mikulskis, a partner at consultancy Lane Clark & Peacock, offers a case for the march of bonds. “In a


Issue 118 | November 2022 | portfolio institutional | 25


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