Written by: Joseph Hill | Hargreaves Lansdown
Restless bond investors, still haunted by the nightmare of 2022, have been losing sleep over whether the recent increase in yields signals the start of another painful drawdown.
Yields on 10-year US Treasuries hit 5% for the first time since 2007 which comes despite expectations of theconflict in the Middle East, and the risk of escalation driving a wave of safe haven trades into US dollars.
Jittery markets and policy uncertainty are unlikely to calm nervous investors who could be forgiven for thinking Halloween is coming around every week. A pause in the US Federal Reserve’s rate rising programme in September after 11 consecutive hikes reflects a more resilient economy than expected, but a higher for longer rate path from here.
As bond investors try and work out whether the market is offering them a treat of a more attractive entry point or tricking them into prematurely betting on a peak in interest rates, many are cautious.
With a sea of red having become an all too familiar sight on investment screens, investors should strap in for the ride, there might be some more ghouls lurking ahead.
How can investors navigate these frightful markets?
With so much going on from war in eastern Europe and the Middle East, to US interest rates at a 22-year high, it’s difficult for investors to keep track of emerging risks and opportunities, which is why it makes sense to leave this to a professional fund manager. There are some talented fund managers who excel at evaluating the economic picture and allocating capital accordingly.
HL fund picks for navigating an uncertain macroeconomic backdrop
M&G Global Macro Bond
One of the most experienced bond fund managers in the UK, Jim Leaviss, starts with his 'bigger picture' macroeconomic outlook, forming a view on economic growth, interest rates and inflation globally. He then has the freedom to invest in different types of bonds, issued in different currencies to generate a combination of income and growth over the long term.
Troy Trojan
Troy Trojan is run by experienced fund manager Sebastian Lyon. Part of the fund invests in shares of well-established companies in countries like the US and UK and some smaller companies too, which can be more volatile. The rest invests in UK government bonds and US inflation-linked bonds, which aims to provide some shelter from rising inflation. It also holds gold and cash, which can help offer some stability when times are tough in the economy and stock markets.
Related: Developed Markets Face Recession: Where Can Investors Turn?