Pictet’s Paolini predicts bear market for government bonds


Pictet Asset Management chief strategist Luca Paolini predicts that low yields of developed market government bonds will continue to disappoint, leading to a bear market comparable to the late 1970s.

Speculation over the health of the bond bull market has heightened recently, with vetern fixed income manager Bill Gross saying it has come to an end.

Also indicating concerns over continuing austerity and non-business friendly government policies, Paolini says: “We should expect a very difficult environment for government bonds.

“In terms of bonds, yields are extremely low but also equities aren’t actually that cheap.” 

For instance, Pictet predicts 10-year US treasuries will have a negative return of 2.6 per cent over five years while 10-year German bunds will produce a loss of double this at 5.2 per cent for the same period.

Despite raising the issue of equities not being cheap, Paolini is more positive on the forecasts for equities and specifically emerging market equities.

According to Pictet data, Asian equities would show the strongest return of 12 per cent, followed by emerging market stocks with 10.9 per cent and Latin American equities with 8.5 per cent.

Last month, Pimco bond guru Bill Gross prompted a sell-off in US treasuries after arguing that the three-decade long bond bull market was over.

Gross tweeted: ”The secular 30-yr bull market in bonds likely ended 4/29/2013.” However, he later told the Wall Street Journal that he does not expect bonds to enter a bear market during 2013.