Yields are getting hard to come by, says Schroders’ chief investment officer

PETALING JAYA: Unlike previous crises where you could always get some yield from government bonds, or even cash, this is not the case this time around, says Schroders chief investment officer and global head of multi asset investment Johanna Kyrklund.

In her Talking Point report, she said that with the Covid-19 pandemic, the causes of such markets are typically without precedent, be it the emerging-market crisis of the 1990s, the end of the dotcom bubble in 2000, the Enron scandal in 2002, the global financial crisis in 2008, or the European sovereign debt crisis.

“The future is always uncertain and risks are always around the corner. But there was always one thing you could rely on, and its absence makes things a lot more difficult: the comfort of bonds and cash,” said Kyrklund.

She said that in previous crises, if an investor wanted to be defensive, they could park themselves in government bonds yielding as much as 8.8%, or even cash at as much as 7%.

“Cash over the last 10 years has become far less kind to investors, with yields in many cases moving into negative territory. But you could at least still get some yield from government bonds, plus they had a nice negative correlation with shares (for example, the price of bonds would rise when equities fell and vice-versa).

As of today, though, the US 10-year Treasury yields 0.7%. And Schroders’ analysis suggests that over the next three years, it’s by no means certain that the negative correlation between bonds and equities will reassert itself.