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Aberdeen grows more cautious about bonds
Aberdeen Asset Management has warned that rising inflation pressures in developed markets could create volatility in bond markets, but overall the manager remains positive about bonds.
Aberdeen Asset Management is maintaining a somewhat positive view on bonds but urges caution with rising inflation potential in major economies worldwide.
Aberdeen’s bond outlook is somewhat more muted than it was a year ago, according to Aberdeen global head of fixed income Paul Griffiths.
The food and energy story was not just a blip, and there would be systemic inflation creeping into major western economies worldwide with serious implications for bond markets, Griffiths said.
There have so far been limited signs of that coming through in developed markets, but in emerging economies Griffiths was unconcerned.
“In the west there is mostly no growth and interest rates are low,” he said. “In emerging markets we can see scope for interest rates to be raised without overly dampening growth expectations.”
Looking forward as investors Aberdeen are watching inflationary pressures in the near term, but in the long term have very real concerns we could be in an inflation risk scenario, he said. There is scope for volatility in the bond markets, he added.
In the fixed income market there are plenty of upsides with opportunities in higher alpha propositions such as emerging debt in Latin America and Asia, and Asian fixed income and credit products, Griffiths said.
Aberdeen’s Australian fixed income Victor Rodriguez said that over the next 12 months returns on Australian bonds would be very similar to cash.
His view is that the Reserve Bank of Australia needed to raise rates one or two times in the next 12 months, but with the recent situation in Japan the market had gone to pricing in a small chance of a rate cut, he said. This means there is opportunity from rising bond yields, but that only offsets the fact that you would be getting a slightly better running yield over that period compared to cash, he said.
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