The sustainable investor for a changing world

Front of mind | Article - 2 Min

Chart of the Week - Pricing of risk suggests it is time for bonds

This material is intended for Institutional Investors (as defined in the Securities and Futures Act, Chapter 289 of Singapore) only and is not suitable or intended for persons who do not qualify as such.

Every risk has a price, and in our view, markets are priced for different outcomes. Strikingly, the chart of the week shows bond risk premia now exceed equity premia for the first time since the Great Financial Crisis.

The gap has only twice been this wide in the last century – during the Great Depression and the Nasdaq tech bubble. The current differential has been driven by higher long-term rates (inflation breakevens and real yields have risen) and lower earnings yields as analysts have turned more bullish on expected earnings.

Relative valuations look extreme to our multi-asset portfolio management team, presenting attractive opportunities for active asset allocation. Their key risk positions are now an overweight versus their benchmark in sovereign bonds, chiefly in the US, and a modest underweight in equities, concentrated in Europe.

Click here to read our latest Asset Allocation Monthly entitled “Complacent? Not us”.


Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk. This material is produced for information purposes only and does not constitute: 1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. It does not have any regards to the specific investment objectives, financial situation or particular needs of any person. Investors should seek independent professional advice before investing, or in the absence thereof, he/she should consider whether the investments are suitable for him/her.

Related insights

02:47 MIN
Asset allocation video – Riding the lockdown waves
Chart of the Week - Pricing of risk suggests it is time for bonds
To access insights from our teams worldwide visit:
Explore VIEWPOINT today