Anyone tarring bonds and bond proxies with the same brush is overlooking the latter ’ s potential for dividend growth , writes Henderson ’ s David Smith

DOWN IN HISTORY as one that was full of surprises , with the man on the street voting against the establishment . First it was the vote to leave the EU and Brexit and more lately Donald Trump ’ s US presidential win to become the leader of the Free World .

The market has taken the initial view that Trump ’ s intended fiscal policy ( tax cuts and increased spending on defence and infrastructure ) is good for economic growth and inflation . Since his victory , inflation expectations have materially increased , causing bond markets to fall . However , bond markets started to decline in August when the 10-year UK gilt yield reached a historic low of 0.52 per cent . In September , European companies Henkel and Sanofi both issued bonds at negative rates . Effectively investors were paying for the privilege of lending money to a company . Surely , this represented a period of crazy valuations for bonds ? Whether this is the end of the 30-year bull market for bonds remains to be seen , but what do rising bond yields mean for equity investors ?

In the short term , equity markets have seen a sharp sector rotation out of so called “ expensive bond proxies ” ( equities with bond-like characteristics i . e . low volatility and a steady yield ) and into

6 trustnetdirect . com