Gilt prices have taken a tumble
Even as headline inflation slows, as seen in the August data, we would expect the BoE to continue to raise interest rates. The market is currently pricing-in a further two percentage points (+2.0%) increase in base rates before year end. This will maintain pressure on bond yields. As bonds have cheapened, we have started to rebuild our bond holdings, although overall exposure remains well below levels seen in 2018.
From where will bonds take their lead
As always, our approach is to proceed with caution and remain dynamic, ready to adjust the portfolios based on new information in the marketplace. Volatility will clearly remain elevated in the fixed income markets for some time to come, which will offer opportunities for both profit and protection.