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Dickie Hodges: now is the time to hedge rate rise risk

by Dylan Lobo on Mar 05, 2014 at 13:21

Dickie Hodges: now is the time to hedge rate rise risk

L&G Bond Dynamic  fund manager Dickie Hodges says bond buyers must appreciate the tactical opportunity that lies in front of them.

His comments come five years after the Bank of England's unprecedented step to cut rates to a historic low. Under the guidance of former governor Mervyn King in March 2009, the Bank used all the tools at its disposal in a desperate battle to prevent a collapse in the banking sector and avert a deep recession.

The previous 18 months saw Northern Rock nationalised and huge taxpayer-funded bailouts for RBS, Lloyds and HBOS, while over in the US Lehmans collapsed.

In 2008 King started to cut rates from 5% and in March 2009 used the last left of his wriggle room to cut them to their current 0.5% level.

Some of the statistics on the impact of this move are astounding.

Nationwide chief executive Graham Beale pointed out in a blog that a million first time homebuyers had yet to see a rate rise, while research from campaign group Save our Savers found that savers had lost more than £300 billion from the low rate.

They could lose even more after monetary policy committee member David Miles suggested the 5% level would not seen again for years, if at all.

L&G's Hodges (pictured) urges people to try and move on from this low rate mind-set and envisage an environment with a higher borrowing rate.

'Five years will feel like a long time for some investors and in many ways it is,' Hodges said. 

'UK interest rates have never stayed so low for so long. But five years is not forever. There was a before and there will be an after.'

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