Jeff Keen (pictured), fund manager, Waverton Global Bond fund, J O Hambro Investment Management (JOHIM), on the impact of the Fed’s and ECB’s stimulus measures…
September saw the official confirmation of long awaited stimulus initiatives from both the Fed and ECB. The Fed announced an open-ended QE programme, focused on purchasing USD40bn of mortgage-backed securities (MBS) a month as well as extending its conditional commitment to leave its policy rate at near-zero through mid-2015. It also stressed that future policy action will depend on how economic conditions develop with a particular focus on the level of unemployment.
Meanwhile, the ECB confirmed its willingness to purchase “unlimited” quantities of peripheral government bonds under the new Outright Monetary Transactions (OMT) policy, but only where governments make an official request for aid.
Market reaction to these announcements saw an initial sharp rally for risk assets and a sell-off in safe haven government bonds, where yields rose around 30bps before recovering to end modestly higher at month end. Fears over Spain’s ability to recover in the face of increased austerity, as presented in the new budget, ensured the mood remained cautious.
JOHIM remains optimistic that although core bond yields seem to be trading within a fairly rigid range, the possibility for a breakout remains biased on the upside as an eventual return to ‘normal’ markets filters through to an increase in real yields from these ultra-low/negative levels.
The Waverton Global Bond Fund rose 1.7% during September, outperforming the Citigroup World Government Bond index which gained 1.3%.