Low-yield G7 bond warning

Low-yield G7 bond warning

Specialists have warned of the risks of investing in low-yielding G7 bonds as prices fall.

In a letter to investors issued on 7 May, Peter Elston, chief investment officer for Seneca Investment Managers, said: “Right now, the yield of 30-year inflation-linked gilt is -0.9 per cent, which means that buying and holding it to maturity will lose you 24 per cent of your real capital.

“If you measure risk in terms of volatility, be my guest and invest. If you measure risk in terms of potential for permanent loss of capital, step away from the table, leaving the crumbs that may be left on it for someone else.”

Meanwhile Laith Khalaf, senior analyst for Bristol-based Hargreaves Lansdown, said: “The price of the 10-year benchmark UK gilt has fallen by 6 per cent since its recent peak on 30 January.

“This in effect means those who invested on 30 January have seen 1.5 years’ worth of income wiped off the capital value of their investment in three months.”

Analyst view

Peter Dean, investment consulting director for Broadstone Pensions and Investments, said: “In Europe, German Bund yields rose sharply during the month, rising from almost zero to 0.38 per cent at month end following positive economic data and nervous investors exiting their positions.”