The Fed is also close to the 8 trillion mark, which corresponds to 37% of GDP for the US economy. Japan has been a school for some time now, where the BoJ holds stocks equal to 133% of GDP and has even started buying shares through the door of the ETFs.
The difficulties for the investor
For the investor, called today to choose where to allocate his savings, it is hard bread. Because stock markets are expensive in terms of multiples – especially Wall Street – and in any case on historical highs (such as the Dax 30 in Frankfurt or the Stoxx 600), but bonds, which in other times would have represented a natural outlet and portfolio rebalancing, I’m a minefield. Even more dangerous than the stock market. So much so that Ray Dalio, the largest hedge manager in the world, has declared that he prefers Bitcoin to bonds.
Why not get confused: when rates rise and are seen to rise further in the coming years in view of the recovery of GDP and inflation – this is the scenario that starts from the US and then could slowly arrive in Europe – buying bonds means exposing oneself to an almost mathematical loss on the price (which falls just as yields rise). It depends on the maturity but keep this simple formula in mind: the price of a ten-year bond, where the market perceives a possible increase in yields of one percentage point, can decrease by about eight points.
«I have no doubts about the difficult future for those who invest in fixed coupon bond issues. It’s like being between two fires: short maturities will still offer negative returns while medium-long maturities will suffer – explains Angelo Drusiani, financial advisor to Edmond de Rothschild -. Suffice it to say that the price of the last future BTp issued in April, with a maturity of 16 years, fell by around 2.5 percentage points in not many sessions. The stock market, on the other hand, could be more resilient and absorb future rate hikes. Because these will be accompanied by a growth in GDP and because the traditional sectors will be supported by technological innovations, allowing both to benefit from possible increases in prices, or, in the less optimistic case, from substantial stability “.
The longer the bond, the higher the risk
Also for Tommaso Federici, deputy general manager & CIO of Banca Ifigest, between bonds and shares they are the first to be riskier. “Interest rates will rise sooner or later, but we believe that, even if the 10-year Treasury, which has been stagnating at around 1.60% for a few months, were to reach 2.50%, it would not be for equity investments- Federici comments -. Regarding the risk on the fixed income market, we suggest paying attention to the duration of the investment, as the longer the bond is, the higher the risk. The long duration of US bonds must certainly be limited in portfolios and for those of European government bonds there is not much premium ».