Investors should monitor bond markets, not Brexit
Brexit won’t be a catalyst for a revaluation in bond markets until investors tire of current low yields, Thesis Asset Management’s Michael Lally has said.
Lally also stated that a revaluation would probably not occur until any of the central banks chose to raise rates, as opposed to being influenced by a Brexit vote on 23rd June.
Following the recent flurry of ‘long bonds’ issued and bought by many in the Eurozone, Lally believes yields on such bonds are at potentially unsustainable levels, despite the demand from yield hungry investors.
“Spain’s latest bond auction was three times oversubscribed, and many Eurozone government bond yields are now in negative territory.
“France recently issued its 50-year bonds at a paltry 1.9% yield, while both Ireland and Belgium went the whole hog and issued 100-year bonds at 2.3%.
“These yields are obviously unsustainable in the long run, but are supported for now by the European Central Bank’s continued stimulus. Even the Fed is reluctant to raise rates for fear of rocking the boat.
“Just how far distressed buyers of yield are prepared to go before the tide turns, remains to be seen. Countries such as Greece don’t exactly offer a guarantee with their enticing rates.”