Oliver's Insights
The bleak outlook for government bond returns
12 March 2010- Despite fears about high levels of public debt, government bond yields in developed countries remain low on the back of low inflation, low short-term interest rates, low levels of
private sector borrowing, banks buying bonds rather than lending, and strong investor flows into bond funds
- While these factors may constrain government bond yields in the short term, yields are likely to rise over the medium term resulting in capital losses for investors as higher shortterm interest rates are factored in, private sector borrowing recovers, and investors demand a risk premium for high public debt levels
- Government bond yields in the US, Europe and Japan are well below fair value. Australian bonds with their relatively high yields are close to fair value
View The bleak outlook for government bond returns (PDF - 390 Kb)
The profit reporting season and shares a year after the low
4 March 2010- In terms of net positive surprises the reporting season just ended in Australia was the strongest since August 2007. Profits have now bottomed and with the economy picking up pace and costs well and truly under control, profits are likely to rise by around 20% over the next year.
- The upswing in the global profit cycle is a global phenomenon, albeit most evident in Asia and the US.
- As a result of the recent correction in shares and upwards revisions to earnings expectations, shares are now slightly cheap. Stronger earnings are likely to be a key antidote to worries about sovereign debt and monetary tightening in some countries this year.
View The profit reporting season and shares a year after the low (PDF - 90 Kb)
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