UK funds dump bonds on fears multi-decade bull run is ending - Reuters poll
By Claire Milhench
LONDON (Reuters) - British funds cut their bond holdings in October to the lowest level since June on fears of a broad sell-off in fixed income markets as central banks run out of easing options, a Reuters monthly survey showed on Friday.
UK investors slashed their overall bond allocations by over 3 percentage points to 27.2 percent and raised their cash holdings to 9.6 percent, the highest since July, worried that the long-running bond bull market was coming to an end.
"With recent sovereign bond yields aggressively backing up in the U.S., UK and Europe, 'bond bears' have been vocal on their views of an imminent 'bond crash'," said Peter Lowman, chief investment officer at Investment Quorum.
"This might be a little premature given that the biggest bond buyers in the market remain the central banks - perhaps it's fairer to say it's the beginning of the end of the bond bull market."
The poll of 12 UK asset managers was carried out between Oct. 14-26, just after UK gilts racked up their biggest weekly losses in more than a year following a sharp fall in the pound on Oct. 7. Sterling revisited these lows on Oct. 25, punished by fears of a hard Brexit.
U.S. and European government bond yields also hit four-month highs in mid-October with U.S. Federal Reserve chair Janet Yellen warning that the Fed might have to run a "high-pressure economy" to reverse the damage from the 2008-2009 crisis.
Trevor Greetham, head of multi-asset at Royal London Asset Management (RLAM), said he saw an upside risk to bond yields globally as growth picks up and inflation rises.
And Sacha Chorley, a portfolio manager at Old Mutual Global Investors, warned that a broad-based collapse, or a bond-led sell off in all asset prices was not impossible, and could be compounded by the high concentration in defensive assets.
Investors raised their global equity exposure to 45.6 percent from 43.9 percent in September, but some respondents expressed unease about valuations.
Others cited risks such as the ongoing uncertainty around Brexit, the limitations of central bank policy, and anaemic global growth.
"It seems that many market participants are turning a blind eye to a number of tripwires ... any one of which could potentially destabilise confidence in markets," said Mark Robinson, chief investment officer of Bordier & Cie (UK).
And whilst Democratic candidate Hillary Clinton has pulled ahead of Republican Donald Trump in the race for the White House, there is little expectation of a boost to markets if she wins.
"A victory for Clinton would engender a global collective sigh of relief, but is unlikely to lead to a relief rally with markets having been so strong already this year," said Rob Pemberton, investment director at HFM Columbus.
(Editing by Toby Chopra)
