The Danish bond market is subject to the developments on the other side of the Atlantic where the prospects of the first rate hike in the US set the agenda. Experience from the past 30 years shows that a bear market typically regains momentum when the US central bank, the Federal Reserve, launches its first rate hike and that yield rises are typically most pronounced in the first 3-6 months of a tightening scenario. The 5Y segment is still believed to be particularly sensitive.
It is now time for defensive strategies in bond markets. In a bear market it can be difficult to find a safe haven in bond markets. However, according to John Madsen, the 2Y segment in Europe is the most robust investment alternative. This is due to the segment’s link to the European central bank that has no intentions of raising interest rates any time soon. As a result, John Madsen recommends investors to maintain a portfolio with relatively limited duration. The portfolio should consist of very short positions and 2Y government bonds, while 5Y government bonds should be replaced by 3Y or 5Y non-callable bonds. Investors that require longer duration are recommended to turn to 5% mortgage bonds maturing in 2035.
Read the article ’The bear market in bonds continues’ in Focus no. 83. Questions to the author may be sent to the e-mail address info@cse.dk info@cse.dk until 4 June 2004.
