Global markets seem to be fixated on the notion of whether yield curves around the world are going to invert like has happened in the US - and whether or not that then signals that certain economies are headed for recession.
In a recent interview with the Australian Financial Review, Enhanced Yield Fund Portfolio Manager Jarod Dawson said: "The reality is people have to think less about what an inverted yield curve looks like or means and more about common sense things. Think about the reward you're getting for the risk you're being asked to take."
Jarod said it can work to an investor's detriment to "get caught up in the noise". With the Australian 10-year bond yield probably only half a per cent on an after-tax basis for most people, he said when looking at bonds "...irrespective of trying to work out where inflation is and where retail sales are, what's priced into markets, your downside of not being there is almost zero."
"If the yield on these bonds increases just 1 per cent that's equivalent to an approximately 10 per cent capital loss on a 10 year bond."
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This article reflects opinions as at the time of writing and may change. PM Capital may now or in the future deal in any security mentioned. It is not investment advice.
