'Don't Expect a Bond Crash'

MICUK 2021: M&G bond expert Jim Leaviss is concerned by the sudden rise in inflation but social and economic megatrends will keep bond yields subdued and prices high

James Gard 30 June, 2021 | 9:17AM
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Inflation will remain high this year but that doesn’t mean a bond crash is likely to follow, according to Jim Leaviss, head of public fixed income at M&G and manager of the Silver-rated M&G Global Macro bond fund. Speaking at the Morningstar Investment Conference 2021, Leaviss says the recent spike in inflation could be “defining moment for bond investors”, but there are a number of reasons why bond yields are likely to remain low for the forseeable future.

Inflation is one of global investors’ biggest concerns this year and many indicators are flashing red as economies re-open. Consumer price inflation rose 5% in the US last month, at the fastest rate since 2008. Everywhere consumers look, prices are rising, from fuel to houses and cars. Inflation is generally bad for bonds because because it erodes the real value of their income payments, and usually forces central banks to raise interest rates, meaning investors can get better yields elsewhere. That explains the spike in governement bond yields in recent months and fall in prices (the two move in opposite directions).

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James Gard  is content editor for Morningstar.co.uk


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