Investments  

Fund managers shun bonds despite market turmoil

He observed inflation and interest rates were rising as quantitative easing around the world was ending and the reversal process, quantitative tightening or QT, had started in some places like the US.

He said: "Government bonds are uninteresting and unrewarding. Traditionally investment grade government bond markets offered an inflation premium and a term premium as compensation for lending to the government and locking your money up.  

"With QE these premiums turned negative as bond rates approached or went through zero. In the major developed markets at present, it is only the US market that offers an inflation premium but next to no term premium.

"Elsewhere, bond yields do not even compensate for inflation, let alone offering a term premium, suggesting that government bonds prices could still fall further before they offer value.

"If that is so the case for corporate fixed income is not great as they will almost certainly fall along with government bonds."

David Scott, an adviser at Andrews Gwynne in Leeds, said he would rather hold cash than bonds.

He said: "I have been looking to hold cash and alternative assets in client portfolios, and less in the way of bonds."

david.thorpe@ft.com