Pimco managing director Robert Mead said bond bearers who forecast a bond market ‘Armageddon’ have been disappointed as highly ‘levitated’ global economies aren’t able to withstand higher levels of interest rates.
“We think the RBA is essentially on hold for as far as the eye can see,” said Mr Mead.
“Global forces that are affecting our economy such as zero interest rates in some parts of the world, and even negative interest rates when you think of the Euro zone,” he said.
“Responses that you’d expect to see from the central bank are on hold because there are enough natural elements restricting the potential of our economy,” he added.
Mr Mead said in terms of investment implications, it is important for investors that expected returns from all asset classes should be lowered.
“You can’t, on the one hand, justify elevated risk asset classes because discount rates are low, and on the other hand expect high returns from those assets; it just doesn’t gel,” said Mr Mead.
“You need to be using those low interest rates – in terms of valuation and in terms of future expectations,” he said.
“So for bond investors, we think the bond market represents a great opportunity. It still provides investors with income, it still provides defence in relation to asset price volatility, and it also then allows sort of an insurance approach for a portfolio,” Mr Mead added.
