The worst may be over in fixed income markets, manager says

Central banks are "ahead of the curve" in dealing with inflation, Franklin Bissett's Tom O'Gorman argues.

Michael Ryval 9 August, 2018 | 5:00PM

It is likely that the worst is over in fixed income markets, says Tom O'Gorman, senior vice-president and director of fixed income at Calgary-based Franklin Bissett Investment Management. And while investors have experienced weak or negative returns for the last year, they should also take a longer-term view and bear in mind that fixed income plays a critical role in one's portfolio because it is negatively correlated with equities.

"By evidence that the worst may be over you can look at the U.S. 10-year bond yield. It peaked at 3.1% in mid-May and has been trading between 2.8% and 3% since. In Canada, the 10-year bond peaked at 2.5% and has been trading between 2.1% and 2.4% since then," says O'Gorman, lead manager of the 5-star $1.8-billion Franklin Bissett Core Plus Bond.

"But the bigger issue to us is that inflation is rising, but the expectations for inflation are still pretty muted," says O'Gorman, a 30-year industry veteran who joined Franklin Bissett in June 2010. "We are not seeing a lot of the 'pass-through' from inflation to broader cost pressures in the economy where workers demand wage increases and companies have to pass on the costs."

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Michael Ryval

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