Bond Markets Offer New Hope Amid Rising Interest Rates

Strategic Insights -

The aftermath of the 1980s financial excesses led to a period of stagnation, but the economic cycle has turned up again, with most countries firmly back on a growth track. Despite rising interest rates, bond markets offer new opportunities, particularly in the Far Eastern economies, where growing capital demands will provide a catalyst for a developing market in local government and corporate debt.

Key Takeaways:

  • Bond markets worldwide are experiencing a significant downturn, with nine months of losses and rising interest rates in many countries.
  • The Guinness Flight Asian Currency and Bond Fund has real attractions for strategic investors, offering a 7% yield and a 6.9% offer-to-offer fall in sterling terms since its launch.
  • The American economy, despite its influence on bond markets, is expected to rein back its overheated economy, allowing other markets to shine.
  • The Asian economies, favourites of equity investors, are maturing and will require a more developed infrastructure, leading to a growing market in local government and corporate debt.
  • The fund's managers, Daniel Hemmant, Philip Saunders, and Howard Flight, have a proven track record, with the Guinness Flight Global Strategy Fund range delivering strong returns.
  • The fund's distributor status allows investors to receive dividends gross, providing a hefty yield of 7%.

Statistics:

  • American interest rates are expected to remain unchanged until November 8, when the mid-term elections are decided.
  • Bond markets worldwide have experienced a 9-month downturn, with a 15.6% fall in the Salomon World Bond Index (sterling adjusted) and a 7.2% fall in the FT-SE-A All Share index.
  • The Guinness Flight Asian Currency and Bond Fund has a 6.9% offer-to-offer fall in sterling terms since its launch.
  • The fund provides a yield of 7%, compared to a offer-to-offer fall of 15.6% in the Salomon World Bond Index (sterling adjusted).
  • The fund's currency appreciation is expected to contribute to its growth in capital value, with a strong correlation between economic growth and currency values.

Sources:

  • The Sunday Times, 1994
  • Guinness Flight Asian Currency and Bond Fund marketing materials
  • Salomon World Bond Index
  • FT-SE-A All Share index