Bonds are not in a bubble but remain rationally overvalued

ON ASSET ALLOCATION

ANDREW BELL, chief executive of Witan Investment Trust on Asset Allocation

In 25 years’ time, it seems unlikely we will be looking at government bond yields of 3% as “normal”. Unless the world faces a prolonged depression, long bond yields appear unsustainably low. Gilt investors who have held since early 2009 have lost money in real terms, a fact little appreciated in all the discussion over the recent outperformance of bonds versus equities. So, are bonds in a bubble? Despite my scepticism over their longer-term prospects, the answer is no: they are rationally overvalued. Central banks have made it clear they wish to avoid putting a soft recovery at risk, ...