Making sense of this crazy world
Bond is back
I’m not referring to Charlie Higson’s official new James Bond novel, King Zero, to be published on 24 September 2026… although I’m sure it will be an interesting read. No, the Bond reference carries on the theme from last week with regards to investment markets. The latter is less exciting, for sure, but let’s hope it stays that way!
Japanese bond yields have hit a 30-year high this week, which will likely have implications for global markets.
The main concern across bond markets in general, is focused currently on how heavily indebted governments, are competing with large technology companies for capital. Strong corporate earnings continue to support equities, but rising bond yields could possibly make bonds more attractive.
I also want to explore the 60/40 portfolio. Back in time, the mix of 60% equities and 40% bonds were the bellwether of portfolio management. Over the last five years though, this hasn’t worked which has led many to pronounce the death of this type of portfolio. But, today we’ll consider whether this arrangement is once again worthy of consideration.
We’ve talked a lot about globalisation and the transition back towards self-interest, protectionism and self-sufficiency. The prospects of drilling for oil and gas in the North Sea are one thing but, this week, I read that a tin mine in Devon has attracted £71 million investment from the UK government to facilitate the mining of tungsten.
Finally, as promised, I am providing the main equity performance figures for the month, and for the year-to-date to provide some context.
This week’s content:
- Japanese Bonds
- The long and the short of it
- The puzzle between bonds and equities
- Is the 60/40 portfolio back on the radar
- Mining revitalised in Cornwall
- Monthly performance of main indices
Japanese Bonds
Japanese bonds sold off heavily this week over concerns that Japan’s high borrowing costs will reverberate across global markets. The yield rose to its highest level for 30 years.
Compared with the rest of the developed world, the 3% yield on 10-year bonds is nothing, at first glance, to be concerned about but investors/analysts/fund managers are recalibrating their inflation views and are expecting more interest rate rises.
All this uncertainty, according to an article in the FT, could also trigger a disorderly unwind of the “yen carry trade”, a strategy by which investors have long taken advantage of Japan’s low interest to borrow cheaply in its currency, in order to buy higher yielding assets elsewhere.
Strategy wise, the Bank of Japan (BoJ) has ended decades of ultra-loose policy and investors assume it will continue to raise its main policy rate beyond its current 1%. But the weakening yen and rising inflation in Japan, after years of stagnant prices, are putting more pressure on the central bank to accelerate rate rises.
Continues…
Want to get this in your inbox?
Our CEO, Gary Neild, writes engaging Market Commentaries every week. If you would like to receive the full version straight to your inbox every Friday, please join our communications list.
Risk warning
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.