How to avoid the bond pitfalls

Michel Canoy, fund manager of FIT and MMIT at LGIM, examines the state of today's bond markets and looks at what investors can do to negotiate volatility as world order unravels.

Today’s bond markets are truly extraordinary. Government bonds typically yield less than corporate debt, but as the world order unravels, this relationship is being reversed. Bond markets are saying European sovereign bond holders potentially face more risk to their interest payments and principal than investors in investment grade and even some high-yield corporate bonds. This is a consequence of three distinct, but linked, problems: uncertainty caused by European politicians’ apparent reluctance to find a permanent solution to their sovereign debt crisis; a fragile banking system, part...