He says: “It has never been shown anywhere that monetary policy doesn’t work, but the timing of when each country feels the impact is harder to quantify.”
Right now his focus is on long-dated bonds, but he says if short-dated bond yields were to rise materially from here – an event that would likely be the consequence of inflation expectations among market participants moving sharply downwards – then he would likely increase his exposure to short-dated bonds, as the yields would be more attractive.
He says a key consideration for investors in the year ahead may be that government bonds “are back as a safe haven, with yields where they are, the likelihood is that in the event of a big sell off in equity markets, government bond prices would rise.
"But what is different now is that, because central banks are not there to support government bond markets, they will be much more volatile going forward.”
His view is this will lead to a greater “flight to quality” among investors as they seek to minimise the volatility.
This is a particularly existential question for investors, as many when constructing a portfolio deliberately include government bonds as a way of reducing the volatility inherent in equities.
Phil Milburn, fixed income investor at Liontrust, says one feature of the decade during which central banks rabidly interfered in bond markets, was that most of the returns generated from the asset class came as a result of rising prices, with the income yield available falling.
But he feels that in the new world of central banks moving away from QE, the bulk of investment returns will come from the income on bonds.
And that changes the role bonds can play in portfolios, particularly if a client does not have income as a priority.
More broadly, he says he has begun to buy investment-grade corporate bonds because he thinks, even in the event of a recession, the default rates among bond-holders in that part of the market tend to be very low, but the yields right now are quite high.
Craven says he is finding value in high-yield bonds and among the lower end of the investment-grade bond universe, as he feels that even if there is a recession, default rates, at least in the coming year or so, will be sufficiently low, and given how high yields are, he feels this is worth the risk.
Edward Harrold, fixed income investment director at Capital Group, says the performance of high-yield bonds has been strong in recent times because they also tend to be short dated.
