News & Insights

Hype, Armageddon, and why bonds are buyable again

4 Nov 2022

Investment

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The Bank of England is warning of the longest recession since the 1920s, interest rates have just gone up by 0.75% and inflation is running at more than 10.1%. There are countless reasons to be gloomy and talk down the prospects for the economy, but Gary Reynolds, Courtiers CIO isn’t entertaining such negativity.

“Generally the opposite happens to what the main forecasts are,” he says. As for the economic forecasts of the media and economists, well, they’re “dreadful”.

Yes, he agrees, “some form of recession is likely this year” but talk of the coming Armageddon is over the top. “It’s more likely to be a mild one.”

While higher interest rates are bad news for borrowers, what’s often forgotten is that they’re good for depositors.

This year’s correction in interest rates has also “made bonds buyable again” reverting to their more customary role of diversifying portfolios and producing a steady income stream.

Gary argues that the fiscal austerity of the Sunak government will make the Bank of England’s job easier as peak interest rates will be lower than they would have been under a Truss government.

Although recognising the risk that inflationary expectations run out of control and create “a horrible spiral of rising prices”, Gary says he believes the odds are the Bank of England “will win that battle”.

While bonds are back in vogue for the Courtiers Investment Team, Gary also holds out great hopes for equities. He explains that once the market has adjusted to the idea that interest rates aren’t going to be high for a long period, it makes the value of companies that Courtiers hold at very low multiples “very attractive”.

Finally, Gary says he’s excited about this year’s Client Seminars. It’s been an eventful year and so there’s lots to talk about, but best of all it’s a great chance to catch-up with lots of people again. Gary says his favourite December would be “on the back of a most boring year”, but just the last few weeks on top of everything else we’ve seen this year leaves no chance of that this time around.

Source content courtesy of Gary Reynolds (Courtiers Chief Investment Officer) Leo Hallam (Head of Brand & Communication)

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