Brewin Dolphin head of portfolio strategy Guy Foster has reduced the weighting to government bonds within the firm’s strategic asset allocation models.
Foster has made this move in anticipation of an “orderly” unwind of the Federal Reserve’s quantitative easing programme.
Foster says: “The risks posed by a disorderly unwind of quantitative easing are significant and so it makes sense for the Federal Reserve to have taken a first step in that direction, whilst there remains so little inflationary pressure.
“If it has to signal dovish intent once more, to curtail the rise in bond yields, then it has plenty of scope to do so.”
However Foster is less confident of the Bank of Japan’s QE process than he is of the US and believes the Japanese economy is starting to show signs of fragility.
Foster says: “We are particularly concerned about the sharp swings in the Japanese government bond market, which saw yields plummet towards all-time lows in April and have been rising sharply since.”