Fed policy set to shake and stir bond market

Wednesday 26th January 2011

New Zealand investment managers are concerned about the US Federal Reserve's expansionary monetary policies and their negative impact on the global bond portfolio returns.

Russell Investments' latest New Zealand Investment Manager Outlook (IMO) survey found 70% of managers expect the impact will be felt in the coming 12 months.

"A key concern for investors is whether the Fed's programme will be expanded further," said Russell Investments NZ head of consulting Daniel Mussett.

"Investors should note US Fed chairman Ben Bernanke's comments at the end of last year that additional [quantitative easing] programmes are certainly possible depending on how the US economy looks."

Mussett said that while managers recognised the market had anticipated the impact, they remained concerned Fed policy was pushing bond yields higher to the detriment of bond investors.

The survey, completed at the end of December, found managers who responded were all bullish in international and domestic equities, a view shares by their counterparts around the world.

The one caveat on equities, however, was that local managers saw the New Zealand market as having shifted from being undervalued to being either fairly valued or overvalued.

"And yet the downside for New Zealand equities appears limited, with corporate balance sheets in a healthy position," Mussett said.

"One manager noted the era of negative earnings revisions has faded."

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