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Asset managers prepare for government bond bloodbath

Half of the asset management companies surveyed for the August fund manager sentiment survey expect global government bonds to produce negative returns of at least -5% over the next two months. The asset class registered a record negative sentiment score of -40 on a 200-point scale, where a score of 0 reflects aggregate return expectations of 0%. This is down a record 27.5 points from the previous month, as government bond yields reached record lows across the developed world in the aftermath of the Brexit referendum.

No trust in central banks

The survey outcome is likely to be a reflection of diminished investor confidence in central banks’ ability to prop up asset prices as well. The asset manager outlook for European and Japanese equities, the two regions where central banks have been most radical in pursuing stimulatory monetary policies, has also finally deteriorated significantly. However, return expectations for the two asset classes are still positive.

Asset manager sentiment is now more in line with what their clients, fund buyers, think. In recent months, these had already become more sceptical about European equities, and they have never really been enthusiastic about Japanese stocks anyway.

When it comes to government bonds, negative sentiment has become the default mode for European fund buyers. It seems asset managers have now also finally given up being positive. Only one of 16 asset managers that were interviewed, Aviva Investors, expects global government bonds to return more than 5% next year.

Part of the Bonhill Group.