Sell-off wipes £1.3trn off value of UK bonds

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  • More than £1.3 trillion has been depreciated from the value of British bonds since the beginning of the year.
  • Expert Says Recent Selloff Highlights Fragility of 60/40 Portfolios

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Above British bonds have been depreciated by £1.3 trillion since the start of the year amid a massive sell-off in the markets, according to new data.

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About £882.6bn was in securities and indexed securities, according to digital asset management group Collidr, which fell 26.4% and 36.2% respectively in 2020.

The value of UK corporate bonds has also fallen by £514.5bn since the start of the year.

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However, British bonds have risen in recent days as market turmoil subsided after Rishi Sunak’s tenure as prime minister began.

Bonds: Since the beginning of the year, the value of British bonds has been impaired by more than 1.3 trillion pounds, according to Collidr.

Colin Leggett, chief investment officer at Collidr, said: “The unprecedented bond collapse is not only causing problems for pension funds affected by LDI (Liability Driven Investment) strategies. The fall also reduces the yield of any investor who has invested heavily in British bonds.

“Given that bonds have been the cornerstone of many ‘conservative’ fund management strategies, such as the archetypal 60/40, many fund managers are suffering from this unprecedented reduction in UK bond positions.

“Few individual fund managers have actually experienced a decline in the bond markets of this magnitude.

“Many may have been caught off guard by the speed and aggressiveness of the sell-off, and some are reluctant to scale down their longer-term bond placements.

“Given the ongoing economic and political instability, we may still only be at the epicenter of the storm.”

Leggett said the recent bond sell-off is the latest evidence that the typical 60/40 portfolio, with 60 percent of the portfolio invested in equities and the remainder invested in bonds, no longer provides sufficient loss protection for retail investors. volatility.

Traditionally, bonds have been viewed as good ballast for stocks. This is because while the price of stocks can fluctuate quite a lot, bonds were considered more stable. But in recent months, bond prices have tumbled as investors feared the creditworthiness of borrowers.

A year ago, the government was paying just over 1 percent to investors on its ten-year bonds. Today he has to pay about 4 percent. As yields rise, bond prices fall.

Longer maturing bonds, with longer maturities, are more exposed to higher inflation and rising interest rates.

Leggett added: “Retail investors who thought a traditional 60/40 portfolio would provide some degree of protection against market downturns have had a very difficult 2022. In times of economic stress, assets can correlate in ways that don’t fit with traditional “perceived wisdom.”

“Many institutional investors using liability-based investment strategies were not prepared for such extreme market conditions. Investors should always consider the risk that price volatility in excess of recent history will have on their portfolios.”

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