Halister News

(Bloomberg) -- Won’t see a secular bear market in bonds; yields may remain at or below current levels in U.S., euro area for remainder of 2016, BofAML strategist Ralf Preusser said in note.

• Brexit has yet to impact data, ECB expected to announce extension of QE and China expected to “lose momentum”
  • BofAML strategists expect correction in equity markets, while pension liability hedging may support demand for duration in U.S.
• Too early to be underweight duration as “we haven’t seen the lows in either bund yields or USTs”
  • Not being invested is “often the wrong conclusion” as the U.S. market likely to “outperform on a cross-market basis”
  • “Cash underperforms bond returns even in a secular bear market in rates”
• BofAML conducted bear market simulation which assumes history “perfectly reverses itself,” where govt bond yields retrace path of last 30 years
• Results “bury the myth” that rising rate environment would result in “severe losses” for bond investors over multiple decades
  • Returns in simulation “remain decent,” outperform cash, though are lower during the next 30 years than last 30 years; cumulative loss would be limited to -3.4%, total return index bottoming in Feb. 2017, with worst 1-yr return -4.8% vs -4.5% past 30 yrs