Risk on as bond returns slump at start of year

Julian Harris
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THE RETURN on government bonds has seen a significant slump since the turn of the year, with data revealing that investors in UK gilts took the strongest hit last month.

While riskier assets – such as equities on the FTSE 100 – soared in January, gilts lost two per cent, while other so called safe haven assets also suffered.

New figures show German bunds losing 1.7 per cent last month, while US Treasuries were down around one per cent.

French government bonds also lost 1.5 per cent in the opening month of 2013, putting these forms of debt among the worst performing major financial assets.

Conversely, the FTSE gained 6.43 per cent during January – marking the best start to a year for the blue chip index since 1989. And globally, equities jumped nearly five per cent, although gains were pared yesterday.

“Perceived declines in tail risks and plentiful liquidity, with more resolute asset purchase programmes on the way from Japan, have noticeably changed investor sentiment and behaviour away from ‘risk-off’ to ‘risk-on’ mode,” commented the Institute of International Finance in a research note.

Investors will also be keeping an eye on monetary policy closer to home.

Incoming Bank of England chief Mark Carney appears in front of the Treasury Select Committee on Thursday, with markets looking for any hints towards a possible change in direction.