In the latest Oliver’s Insights, Dr Shane Oliver looks at the search for yield that has seen investors move into yield focussed investments largely in response to ultra-low bond yields and interest rates and what the Fed’s move towards reducing its bond holdings may have on this.
The key points are as follows:
- It’s hard to argue that the search for yield has gone too far given how low bond yields are. A range of assets still provides much better yields than cash and bonds.
- However, bond yields are likely to gradually trend higher helped by stronger global growth, a gradual rise in global inflation and the Fed moving to reduce its bond holdings. This suggests the search for yield will slowly start to wane and the risk of a reversal down the track will gradually rise.
- That the Fed can move to start reversing its posts Global Financial Crisis (GFC) quantitative easing is another sign the US and the global economy is getting back to normal after the GFC. This is good for investors.