Jamieson Coote Bonds chief investment officer Charlie Jamieson said equity managers are employing a "cheap sales trick" when they single out long-duration government bonds as being dangerous and vulnerable to large capital losses.
Any sudden 'normalisation' of interest rates around the world would extend to property and equities as well as the bond market, Mr Jamieson said – and significantly higher costs of capital would also plunge developed economies into recession.
"This isolation of only one bond among a vast array of bond securities is as misleading as picking a particular equity stock on the ASX and showcasing all equity returns based off the performance of one highly sensitive company," he said.
If the global financial crisis were to repeat itself, Australian investors could lose a large portion of their retirement savings if they have "little to no exposure to true to label defensive fixed income (and a large bias to long only equities)", Mr Jamieson said.
Bonds were in the news this week, with the Australian Office of Financial Management issuing $11 billion of Australian government bonds (with the offer oversubscribed by $9 billion).
Mr Jamieson noted that demand for Australian government bonds by foreign investors is at record highs, with "global sovereign wealth funds, pension funds, asset managers and central banks alike seeing no apparent jitters" when it comes to the asset class.
"These sophisticated investors see the value of such product in a diversified portfolio in such times of uncertainty," he said.
Looking forward, Mr Jamieson said interest rates are likely to "consolidate in a range" – with the RBA looking to be firmly 'on hold' in 2017 and the US Federal Reserve likely to hike three times at most throughout the year.
"Historically after a long and powerful trend, markets do not easily reverse without forming a base for a number of years," he said.
"President Trump cannot change structural issues of highest ever global debt burdens which require low interest rates to service increased leverage, demographics continuing to drag on economies in the Western world and technology continuing to provide lower cost (disinflationary) outcomes for consumers."
Furthermore, the pullback in government bonds in the final quarter of 2016 provides a "solid footing" for Australian government bonds, Mr Jamieson said.
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