Views From The Experts


 John Pattullo and
Jenna Barnard

Co-Heads of Strategic Fixed
Income at Henderson Global



Global Grab For Yield Continues



A few months ago we remarked that credit markets were very boring. US credit markets were displaying late cycle behavior, M&A activity was high and it was not an environment in which credit investors were getting well rewarded.
We had, however, a growing niggle that global bond yields may keep falling against all the mainstream consensual thinking. Our main concern was, and indeed still is, the dismal global growth we have experienced post the Global Financial Crisis.
In 2010 we went short duration in our portfolios partly due to overconfidence after a rather successful credit crisis, but also partially blinded by our orthodox university training in the science of economics. It was after reading Richard Koo’s book in 2011 that we completed a volte-face in our duration thinking. Koo is highly critical of the economics profession as it completely ignores “behavioral” responses to traumatic events. He introduced the phrase “balance sheet recession” and predicted that Europe would turn “Japanese” nearly six years ago—frankly, he has nailed it. We have also long been big fans of Larry Summers’ “secular stagnation” theme; now Brexit has exaggerated this view.
Thus, our macro outlook remains realistic but fairly dismal regarding growth and inflation. Aside from the impact from Brexit, we have serious concerns about falling Japanese bond yields, the strength of the yen and the almost inevitable threat of a Chinese devaluation, which will bring yet another wave of deflation.
Bond returns will be all about “income” in the future, and we intend to lock this in for as long as possible for our investors. We expect bond yields in the US and the UK to fall further and their yield curves to flatten even more as European, Japanese and Asian investors seek out yield. We expect investment grade bonds to “party on” as the global grab for yield continues.

*Brexit: UK’s decision to leave the European Union.



HENDERSON GLOBAL INVESTORS is a London-based global investment management firm established in 1934. Henderson follows a client-led, “Knowledge. Shared” philosophy that provides relevant, critical insights empowering clients to anticipate, act and make better investment decisions day to day. With US$127B in assets under management as of June 30, 2016, offices in 16 countries and approximately 1000 employees worldwide, Henderson provides its institutional, intermediary and high net worth clients with access to skilled investment professionals representing a broad range of asset classes. Since 2001, Henderson has offered differentiated mutual funds to clients in the US based on unique investment processes and global market perspectives.

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