February 1, 2013 7:53 pm

Time for calm as Treasuries age nears end

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After a bull run like this, self-control is the best investment

Michael Hasenstab is far too young to remember how high yields on “safe” bonds can get. When the UK government paid 15.5 per cent for 20-year money in 1976, he was three years old. He now looks after $175bn of bonds for Franklin Templeton* and reckons that buying US government debt at 2 per cent is rewardless risk. His views are news because he bet heavily on Irish debt, riding the recovery in emerald bond prices. With yields now little more than 4 per cent, that game seems to be over.

Mr Hasenstab has switched to short-dated emerging market debt, while others have put their winnings into equities. There is nothing like a summer-in-January start to bring in the buyers after they’ve heard why they should, often from the same people who argued last year that shares were finished. Yet the big-picture boys at Bank of America Merrill Lynch are nervous.

Their survey this week shows investors at their most bullish for two years. We’re well into “greed” territory on their fear-o-meter. Since 2006, $819bn has flowed into bonds, with $573bn draining from equities. A mere $5bn moving the other way would trigger their sell signal, and: “Global equities tend to fall 5 per cent on average in the four weeks following a ‘sell’ signal.”

The longer-term picture still looks quite good. The bond boom that started in 1976 is over, as Mr Hasenstab points out. Rising inflation could start a stampede into shares, with dramatic results, but after a bull run like this, self-control is the best investment.

Carn’t get it right

Alison Carnwath is the woman who stood in front of the juggernaut. What happened next is not entirely clear, since on one reading of the events she jumped aside, and on another, she jumped aboard. This week she appeared in front of Andrew Tyrie, MC of the best free theatre in town, the Parliamentary Commission on Banking Standards.

Tyrie & Co wanted to know about Diamond Bob and his Barclays bonus. Having just heard a credibility-stretching defence from Sir John Sunderland, they turned to Ms Carnwath, his predecessor as chairman of Barclays’ remuneration committee. Explaining that Mr Diamond couldn’t see that Barclays’ bankers’ pay was too high, she produced this gem: “He thought he found loyalty in people around him by paying them a lot of money.”

That sounds like a working definition of a mercenary. Not surprisingly, she disagreed, but found herself outnumbered, and resigned. All very commendable, except that her committee had unanimously recommended paying the bill for Bob, and she didn’t resign until many months later.

She was clearly under pressure, with the Barclays bigwigs in thrall to Mr Diamond. They had all come to believe that seven-figure payments were little short of every banker’s birthright. Nevertheless Ms Carnwath, whose day job is chairman of Land Securities, would be less tainted had she resigned after being overruled as chairman. Had she also explained why, she might even be admired.

Life’s too short

Contemplating the impending joys of retirement, there is nothing more agreeable than spending a few happy hours looking for the very best annuity provider for your pension pot. What? You’ve got better things to do? Ha, you’ll be sorry. There’s no going back, you know, and your insurer will try and stiff you with a lousy deal.

Now the crusaders at the Financial Services Authority want to save the “hundreds of thousands” of nascent pensioners who don’t get the best deal available. Well, I’m one. When a small Aviva policy matured last year, I shopped around. There are several excellent websites to do this. Sure enough, Aviva’s annuity wasn’t the best, but the difference was pennies. It really wasn’t worth the effort.

The pension providers must already tell the policyholder that they can go elsewhere, which seems quite enough provided the right is not buried in the impenetrable prose of the life industry. Those who make the effort deserve the extra reward. As for the rest of us, the FSA should remember our inalienable right to screw up our own affairs.

*I am a director of Templeton Emerging Markets Investment Trust plc (an equity fund)

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