Market signals imply that future returns of global government bonds are going to be "negative in inflation-adjusted terms," says HSBC's chief global strategist.Asset classes traditionally considered as "safe havens" for investors may be in a uniquely vulnerable position, a top HSBC economist has warned.
The economic news about continued low inflation has made this promise credible, he explained, but the consequence of this environment has been the driving of global bonds and credits into "very expensive valuation territory." "These signals imply that future returns of global government bonds are going to be negative in inflation-adjusted terms."What this means for investors is that if inflation picks up a little faster than expected, these assets are suddenly at risk, a small surprise that could have a big impact on market pricing.
"This should be a reasonable environment for corporate profits, and it should be an environment that favors risk asset classes too," Little explained.
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