Investors focusing on the wrong type of rates
An upward shift in bond prices would significantly impact every asset's market price, from shares, to property to collectible licence plates, and that is the greatest risk investors face today, according to Montgomery Investment Management.
Chief investment officer, Roger Montgomery, said in his October whitepaper that investors needed to prepare for long bond rates to rise again.
Investors should be watching to see what happens with long bond interest rate as that was what would cause assets prices to change and not watch short-term interest rates, or central banks' next moves, Montgomery said.
"It is currently our view that long bond rates are at the end of a 35-year decline coinciding with the end of an even longer term expansionary credit cycle. As a result, prices for assets are at extreme high just as earnings are under pressure to grow without the benefit of credit."
Low interest rates caused investors to chase higher yields and migrate from savings deposits to riskier assets, like shares, hybrid securities, and property, he said.
The whitepaper highlighted that price records were being broken across the world, in all asset classes, and that was caused by low interest rates. But, it also signalled a short-term cycle ‘bubble'.
The whitepaper also featured Deloitte Access Economics' economist Chris Richardson, who warned of a multi-decade period of poor returns from property following booming prices.
As interest rates rose, asset values and prices would fall, pulling returns down with them, Richardson said.
Recommended for you
First Sentier Investors chief executive, Mark Steinberg, is set to depart the asset manager after seven years.
Metrics Credit Partners has completed the acquisition of Taurus Finance Group and BC Investment Group as it looks to launch consumer lending arm Navalo.
AMP has announced to the ASX that it is being sued by property fund manager Dexus regarding the sale of its real estate and domestic infrastructure equity business.
Having seen inflows of US$5.6 billion to its fixed income funds in the last quarter, Janus Henderson has closed on a deal with life insurer Guardian to secure funds to boost its product development.
