While there’s been many gloomy forecasts for the bond market, not everyone agrees that they’ll definitely see significant losses as central banks reduce their bond-buying programs. Mike Bell, a global market strategist at JPMorgan Asset Management, told CNBC Monday that this monetary tightening creates a risk but believes that the recent economic recovery should be enough to offset the impacts of lower bond prices.
“Eventually tighter monetary policy could tip the U.S. economy into recession, but we believe that the economy and equity markets can withstand at least the next year’s worth of monetary policy tightening,” he said.
“We certainly don’t expect the next bear (negative) market to be as bad as the financial crisis in 2008 as banks are much better capitalized than they were in 2008. We therefore expect the next bear market to be a more classic recession rather than a full-blown financial crisis,” he added.
Central banks are unlikely to change their strategy and so investors will be likely face higher interest rates and higher inflation. Therefore, Tavistock’s Raven told CNBC that investors should adapt and diversify their investments. Bonds with short durations, high-yielding bonds and emerging market bonds are all potential options for investors, according to Raven.