This, too, shall pass

“Gentlemen prefer bonds.”

 

-       Andrew Mellon.

 

 

All good things must come to an end. While many within the investment community have been wondering aloud whether stocks have entered a new bull market – unlikely, we feel, unless equities have now become inversely correlated to economic fundamentals – some of us have been increasingly wondering whether government bonds, most notably UK Gilts, but not ignoring the 1,000 lb gorilla that is US Treasuries, have entered a new bear market.

 

Even to suggest as much is to fly in the face of much economic theorizing – which is surely as good a reason for doing so as any. Conventional thinking has it that Gilts are the “go-to” asset in a supposedly deflationary recession, and a number of fund managers – most notably Eclectica’s Hugh Hendry – have gone on record with their fondness for owning government debt.

 

Put, just for one moment, the theorizing to one side, and simply look at the price action. Gilt yields, which move inversely to Gilt prices, have started rather ominously to rise..

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