Some of the world’s leading investors have turned increasingly bearish on government bonds from developed countries as they warn of the growing danger of inflation.
Data this week showing the UK consumer price index hit 3.7 per cent in December fuelled concern and sent benchmark British borrowing costs to an eight-month high of 3.72 per cent.
In Europe, inflation has risen above the European Central Bank’s target for the first time in more than two years, leading investors to bet on interest rate rises in the eurozone and UK this year.
“Why would you want to be a bondholder with bond yields so low and that sort of inflationary trend,” Bill Gross, who runs the world’s largest bond fund at Pimco, told the Financial Times. “If CPI continues above 3 per cent in the UK and 2 per cent in the US, then we are accepting negative real interest rates and that is not an attractive investment.”
Jim Rogers, the veteran investor based in Singapore, said western governments were concealing the extent of inflation, leading him to avoid bonds and continue his long-held preference for commodities. “There has been inflation but the US and UK governments lie about it … Money all around the world is becoming more and more debased so you need to own real assets.”