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Investec's Stopford: core sovereign bond markets have normalised
by Matthew Goodburn on Aug 15, 2013 at 11:40
Stopford, who co-manages the fund with Russell Silberston, also thinks that core government bond markets have normalised after a volatile two years.
Stopford, who was among the first managers to say that QE could be over by 2013, believes the US Federal Reserve will want a 'decent gap' between the end of QE and the first interest rate rise.
He thinks all the conditions appear to be in place for such a timeline.
Tapering set to start
He told Citywire: 'Tapering will begin in September. The Fed is trying to differentiate between interest rate rises and QE. Even the most dovish FOMC members appear to have less appetite for further monetary easing, so the signals seem relatively clear.'
'There are concerns in the US about inappropriate appetite for risk if QE continues and a general acceptance that QE has served its purpose but is not now the best strategy going forward.'
Stopford believes the only thing that could possibly derail the tapering timeline is bad jobs data at the start of September, but he expects the right conditions, namely moderate but not low inflation and reasonable growth, to be in place to allow an interest rate rise by the middle of 2015.
'I think they might start to look at raising rates at the end of 2014 and early 2015. The only thing that could change that would be if the unemployment threshold is dropped from 6.5% to 6% because they will be careful not to raise rates too soon.'
Stopford has been in defensive mode for the last few months but now believes that core government bond yields are moving back into their long term range after months of volatility amid the macro uncertainty.
'Government bonds are moving back to a more normal range, which, in the case of US 10 year treasuries, means 2-4%. They are currently moving back towards 3% and I expect them to be closer to 4% by [US] rate hike time, and will break even for investors at yields approaching that.'
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