The Eurozone crisis has led to sharp declines in the yields of U.S., Canadian and German bonds, and interest rates in Italy and Spain have also spiked.
So be cautious when choosing bonds for clients, says Patrick Bradley, a product specialist with the global fixed-income team at Brandywine Global in Philadelphia. He manages the Renaissance Optimal Income Portfolio.
“Our company would not invest in German ten-year bonds,” he says. “The yields are paltry and below 2%. Even U.S. long-term, 10-year interest rates are extremely low.”
He adds, “They will go up, but you also don’t want to buy a security where the interest rate will go up because the price will fall. That would make preserving capital for investors difficult.”
There are places left to invest, however.
“In Mexico, we’re looking at higher, investment-grade yields in a country that has its fiscal policy under control,” he says. “It’s central bank is credible, and is monitoring inflation so that it doesn’t pick up and erode the currency. Also, the currency is strengthening.”
He suggests advisors should cast their nets far and wide; despite the Eurozone’s associated risks, they should keep an eye out for international opportunities. Countries like South Korea, the U.K. and Poland are ripe for the picking.
“In terms of peripheral Europe, Poland is favourable. It also has a credible central bank that has its fiscal policies under control.”