Fixed Income  

Fixed income returns set to turn negative

Scott Thiel, head of European fixed income at BlackRock, has warned overall returns will be “negative on an absolute basis for the next several years”.

However, he said, for investors willing to be more flexible in bond exposure, opportunities will be arising because of a division in the way that the major central banks are approaching monetary policy, particularly interest rates.

In spite of the surprise US Federal Reserve decision not to reduce its asset purchase programme this month, Mr Thiel said it was still set to do so, which would lead to a rise in interest rates.

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However, the Bank of England and the European Central Bank (ECB) are “nowhere near raising interest rates”, according to Mr Thiel, who said he expects further ECB easing with another round of long-term refinancing operations.

Then there is the Bank of Japan, which is on the opposite end of the scale, having committed to massive-scale quantitative easing.

Mr Thiel said the disparity in central bank actions could present relative opportunities to exploit.