The prices of bonds are starting to dwindle and because of that, Rabobank is bringing down its investments in bonds. Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics, explains this decision and sheds light on her own expectations for the future on the financial market.
The proportion of government bonds in all Rabobank investment profiles has been significantly lowered. Instead, the major bank has shifted its focus to investment grade corporate bonds, as defined by credit rating organizations such as Moody's and Standard & Poor's. Rabobank hinted at this in October, when Mary Pieterse-Bloem, the investment office's chief and professor at Erasmus School of Economics, informed Het Financieele Dagblad that 'we are intending to liquidate 3% of our current equity holdings and invest it in corporate bonds'. She then expressed worry about the return on stocks as the world economy continues its slow recovery from the corona crisis. Given the increasing number of cases, the epidemic seems to be far from finished.
Bond prices are being squeezed
Currency depreciation erodes the nominal value of bonds, prompting investors to sell them, lowering the price. Price and yield move in opposing directions in the bond market. Rabobank is less worried about inflation. According to Pieterse-Bloem, inflation will peak in the second quarter of next year and then drop. The thought of central banks scaling down their expansive support measures is raising market pessimism about bonds.