{"id":19215,"date":"2019-05-16T10:56:24","date_gmt":"2019-05-16T10:56:24","guid":{"rendered":"https:\/\/smh.group\/?p=19215"},"modified":"2023-02-15T13:50:13","modified_gmt":"2023-02-15T13:50:13","slug":"riding-out-investment-bends","status":"publish","type":"post","link":"https:\/\/devstagesite.co.uk\/smhgroup\/riding-out-investment-bends\/","title":{"rendered":"Riding out investment bends"},"content":{"rendered":"

Professional investor interest has been focusing on US government bond yields, with potential lessons for long term investment. <\/strong><\/h3>\n

On 22 March the US stock market caught a sudden \u2013 and brief \u2013 chill.\u00a0 One of the main reasons was the red line in the graph shown above.<\/p>\n

This shows a yield curve plot, which shows the return an investor would receive from buying US Treasury securities, based on their term to maturity \u2013 from one month to 30 years. What happened on 22 March was that the yield on 10-year Treasury bonds fell below that of 3-month Treasury bills.<\/p>\n

Usually the longer the term to maturity, the higher the yield, as demonstrated by the black line on the graph, which dates from one year ago. Intuitively that makes sense \u2013 the longer the period of time money is lent, the greater the risk that inflation will emerge to erode returns, so the higher the interest rate demanded.<\/p>\n

History has shown that when yields fall with lengthening maturities \u2013 described as an inverted yield curve \u2013 a recession is imminent. The logic is that investors will accept a lower return from longer dated bonds because they anticipate short term rates will be cut to counter the impact of the recession. In the US, the reverse yield curve has a very good track record as a warning flag, which explains the stock market\u2019s reaction to the news.<\/p>\n

Whether yield curve movements have retained their predictive capacity is now the subject of some debate. There are those who believe that central bank actions since the 2008 financial crisis have so distorted the bond market that the yield curve can no longer be trusted. On the other hand, there are experts who worry about the credibility of any \u2018This time it\u2019s different\u2019 message.<\/p>\n

However, as the graph shows, the inversion has started to fade since March, meaning it may just have been a short-term blip. Certainly, US stock market investors seem to have recovered their nerve, with the main equity market indices at or near all-time highs as April came to an end. Once again, Wall Street has proved resilient in the face of short-term investment \u2018noise\u2019. Which is a lesson for all investors.<\/p>\n

If you are looking to review your investment strategies you can speak to one of our Chartered Financial Planners<\/strong><\/span><\/a> on 0114 266 4432<\/strong> or info@smhca.co.uk<\/strong><\/span><\/a>.<\/p>\n

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.<\/em> Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. <\/em><\/h6>\n","protected":false},"excerpt":{"rendered":"

Professional investor interest has been focusing on US government bond yields, with potential lessons for long term investment.<\/p>\n","protected":false},"author":4,"featured_media":19216,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[16],"tags":[77,97,272,80],"class_list":["post-19215","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-services","tag-financial-planning","tag-investments","tag-us-government-bonds","tag-wealth-management"],"acf":[],"yoast_head":"\nRiding out investment bends - SMH Group<\/title>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Riding out investment bends - 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