Millions of investors are sitting on portfolios built for a world that seemingly no longer exists, warns the CEO of one of the world’s largest independent financial advisory organisations.
Nigel Green of deVere Group’s comments come as a broad gauge of global government bonds surges to 3.72%, its highest since mid-2008, with yields erupting in Japan, Australia and the US after Fed chairman Kevin Warsh’s hawkish Jackson Hole speech collided with a fresh spike in oil prices driven by escalating geopolitical tensions.
He says: “This is a two-decade high, and it’s moving fast enough to blow through mortgage rates, corporate loans and pension valuations before most people have even noticed it happened.”
Japan’s 10-year yield smashed through levels unseen since 1996, while Australian debt spiked to heights last touched in 2011, and Nigel Green says the sheer breadth of the move is what should worry investors most.
“When Tokyo, Canberra and Washington are all repricing debt at the same time, that’s a huge shift in what it costs governments and businesses to borrow anywhere in the world, not a coincidence.
“Anyone still treating long-dated bonds as the safe, boring corner of their portfolio needs a serious rethink.”
Gold tearing toward fresh record highs is telling its own story, he adds, though he warns against a stampede.
“Money doesn’t flood into gold like this unless investors are genuinely rattled,” says Nigel Green.
“But piling in after the surge has already happened is how people lock in the worst possible entry price. The moment to prepare was before the panic, not during it.”
The deVere CEO is wary of reading the selloff as proof the Fed is about to hike in September, arguing bond markets have a habit of sprinting ahead of the central banks they’re supposedly forecasting.
“Yields have already done the Fed’s job for it without a single vote being cast,” he notes.
“Markets love to overreact to one speech, and investors who tear up their entire strategy chasing that reaction can end up wrong on the call and wrong on the timing, which is the expensive way to be wrong twice.”
For investors, he argues duration risk is the danger hiding in plain sight, and it’s brutal for anyone who ignores it.
“Every extra year of maturity on a bond right now is an extra year of exposure to a market that’s clearly still finding its floor.
“Shorter maturities, a wider geographic spread, and genuine diversification aren’t optional extras anymore; they’re the difference between weathering this and getting flattened by it.”
Rising borrowing costs in Japan, the UK and the US, driven as much by government spending worries as by inflation, add fuel to an already volatile fire, he notes.
“When bond markets start demanding a premium to lend a country money for the long haul, that’s a verdict on fiscal discipline as much as interest rates,” says Nigel Green.
“Portfolios tied to those markets can’t afford to sit on autopilot through a move this size.”
Asked what he’d say to investors rattled by the swings, Nigel Green doesn’t soften it.
“Many savvy investors will be getting positioned for higher yields for longer, because this market isn’t going to wait for certainty from the Fed.”
