Willerbond Capital US$

Our base case scenario remains intact: US government bonds will remain well bid in the near term, but they tend to be overbought and with poor value, particularly if compared to “historical”. The risk profile is unattractive, but every time the Euro-zone crisis temporary relief vanish US government bond prices regain traction.

In reality, we know that the Federal Reserve has deliberately used all the policy tools available to lift asset values, encourage risk taking and ultimately stimulate growth. We, as all investors, move along with policy makers in uncharted territories, but do not forget sound fundamental principals.

Perhaps we tend to agree with those who statethat risk-free government bonds may be overvalued if not in a bubble. Once their “safe-heaven status” vanishes, thebubble could burst. The case for a bubble could be more compelling in the future alsofor investment grade and high yield credits, where everyone is chasingyield right now to escape from financial repression and investment decisions tend to be distorted by unconventional monetary policies.Markets may currently be hoping for “normalisation”, but the reality is that central bankers are becoming ever more unconventional. Indeed, rather than contemplating exiting such policies, the central banks are moving further and further away from the exits.

Our fear remains that the sheer prospect of an exit from quantitative easing would cause such trauma in equity and credit-related markets that the most likely consequence would be that the exit never happens until it is forced by market circumstances. And that sort of crisis probably means the end of the fiat paper currency system as currently constituted.

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