“What do you do with your cash?” said Luke Hickmore, investment director at Aberdeen Standard Investments in Edinburgh, where he helps run a number of bond funds. “Leaving it standing there makes no sense and the experience over the last 10 years is that there is no pain in buying bonds. Learnt behavior is that it is safe. Inflation is nowhere and central banks start buying every time yields go higher.”
Heavy demand for tax-exempt income drove yields on even the riskiest municipal bonds to 3.58% on Friday, the lowest since Bloomberg’s records began in 2003. The influx has compressed spreads across the country and caused some debt in high-tax states like California and New York to yield less than top-rated benchmark securities. Municipal mutual funds have reported inflows for the 58th straight week on Feb. 13.
With 30-year debt yielding 1.92% in the USA, 1.59% in Australia, 1.42% in Canada, 1.05% in the UK. 0.36% in Japan and 0.04% in Germany bond investors, and particularly pension funds, are at a loss for where to invest to generate the returns necessary to meet their future liabilities.Click HERE to subscribe to Fuller Treacy Money Back to top