Investors need to pay attention to the dramatic global bond market rout to safeguard their wealth despite the sell-off stablising, warns the CEO and founder of one of the world’s largest independent financial advisory organizations.
The warning from deVere Group’s Nigel Green comes as the US, European, and Japanese bond rout deepens.
US bonds maturing in 10 years or more have fallen 46% since peaking in March 2020, according to Bloomberg.
European bonds are following in the footsteps of the US rout, with yields on Germany’s 10-year debt rising above 3% for the first time since 2011, earlier this week. Meanwhile, Japan’s 10-year yield, rose to a decade high, despite the Bank of Japan being prepared to buy $4.5 billion worth of bonds.
Also surging this week have been Australian, Canadian and British government bond yields.
Nigel Green says: “The sell-off began after the US Federal Reserve insisted that interest rates would be kept higher for longer.
“Investors need to be ‘on it’ when it comes to the global bond market rout as it could have far-reaching consequences, impacting various asset classes and investment portfolios, despite the situation having stabilised somewhat for the time being.”
He continues: “Diversification is a cornerstone of a sound investment strategy. However, bond market turbulence can challenge this diversification by affecting both the bond and equity parts of a portfolio.
“When bond prices fall and yields rise, investors can experience losses in their fixed-income holdings.
“At the same time, the shift in investor preferences towards higher-yielding bonds can influence stock markets, potentially leading to equity market declines.
“As such, the bond market’s trajectory may require investors to adjust their asset allocation to mitigate potential losses.”
Many investors turn to bonds for stability and income generation. However, during a bond market rout, even traditionally safe investments, such as government and corporate bonds, can face significant price declines.
“Investors who rely on these bonds for capital preservation and regular income should closely monitor their bond holdings with their financial advisor and perhaps consider diversifying into other assets, such as dividend-paying stocks or alternative investments,” observes the deVere CEO.
Some alternative investments to consider could include precious metal; real assets, such as real estate and infrastructure investments; commodities like oil, natural gas, or agricultural products, and Structured products, such as structured notes which can be customised to offer capital protection or enhanced returns based on specific market conditions.
“To grow and protect their money, I would urge investors to avoid complacency over the global bond rout as we doubt this is the end to the turbulence,” concludes the deVere Group CEO.