On a risk/return basis investors can expect to continue to get decent returns from the global fixed interest sector for some time, a London-based manager says.
Colonial First State investments fixed interest manager Kevin Colglazier, who was in New Zealand recently, says that fixed interest investments have been providing investors with some strong returns.
His earlier assessment, that low and falling inflation and the possibility to sub-par growth in the major economies provided an attractive backdrop for global bonds for 2002 has so far proved correct.
He says that fixed interest has been outperforming share markets in many countries including Japan, the United States, and Germany.
In the key US market (long term US rates play a big role is setting rates in other countries including New Zealand) Colglazier says there is potential that interest rates still have further to fall, even though the cash rate, as set by the Federal Reserve is already at a historically low level.
Any further fall in interest rates will be good for fixed interest investors.
Colglazier says that looking forward the possibility of a quick recovery in the US has been ruled out, as has a drawn out recession. He is favouring either a U-shaped recovery (one which is long and slow) or a W-shaped one, which is more like the double-dip scenario economists talk about (a rise, followed by another fall then a rise again).
Colglazier says that either of these two scenarios are positive for bonds, particularly because any US recovery will sub-par and will probably go in fits and starts.
Says one of the other factors which has been positive for the fixed interest sector is that US investors have been switching out of share funds and into bond funds.
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