This decade's bond returns unlikely to match last, says Evolution

Evolution Securities strategist Gary Jenkins today examines differences between market conditions going into 2010 and those of a decade ago. He speculates that the coming decade is unlikely to be as positive for bond holders on the basis of a very different starting point. 10-year treasury yields started the last decade close to 6.5% and are now at 3.9%, so it would take a Japanese “lost decade” like period to generate exceptional returns from bonds, he says.

Looking at performance for 2009, Jenkins notes that high yield led the way in Europe with a total return of 69.5%, triple-Bs came in at 28.4% and all corporate bonds at 16%. In the sterling market corporates returned 15.1% and triple-Bs 31.7%. The month of December was a negative one for bonds although credit outperformed government bonds.

There is little corporate news to start the year, although Novartis has exercised its call option regarding Nestles’ remaining shares in Alcon. Nestle will launch an additional share buyback programme of CHF 10 billion over the next couple of years. There are also rumours that Kraft is about to up its bid for Cadbury, and stories of new issuance being considered by the likes of Manchester United and Cambridge University.