Government Bonds Will Survive the Crypto Era, But Look Different


Expansionary monetary policies have seen investors around the world shift from defensive positions to riskier assets such as equities. Global bond yields have hit record highs during the pandemic, even turning negative in some parts of the world. Germany’s three-year bond yield reached -0.3%, compared to 1.84% in Australia.

However, Mr. Gor’s belief that governments will have difficulty raising debt because of unattractive bond yields angers some financial market pundits.

” That does not make sense. Bond prices are high because investors want them,” said one bond market participant. Prices move inversely to yields.

Demand

Georges Boubouras, Head of Research at K2 Asset Management, believes that central bank digital currencies or CBDCs will gain widespread adoption and complement the current Western bond issuance regime.

“However, bonds as an asset class are expected to remain the most defensive asset class and continue to exhibit the lowest correlations to equities (risk) for some time to come, despite artificially low nominal rates due quantitative policies.

Pimco’s Australian chief portfolio manager, Rob Mead, echoes the idea that there is a large pool of bond buyers.

“There are no shortcuts to finding these quality revenue-generating opportunities – it requires thorough, bottom-up research by experienced and well-resourced teams.” Mr. Mead also recognized the place for less traditional assets in portfolios.

Mr. Gor left his role at Pendal to join crypto advisory firm Trovio, joining a wave of traditional financiers who have taken up positions in digital companies.

He predicts that central banks will be able to control interest rates through their digital currencies, allowing governments to tap pools of liquidity through decentralized finance to raise debt.

“Central banks are going to raise money because they are going to issue money and give funds to governments to finance their deficits?” quipped a fixed-income expert. “It completely ignores the independence of central banks.”

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