LIVE MARKETS-Gulf escalation fears mean it's time to exit longer-dated bonds

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GULF ESCALATION FEARS MEAN IT'S TIME TO EXIT LONGER-DATED BONDS

Concerns about fresh escalation in the Middle East after the midterms in the US are gaining traction, and, as a result, BlueBay say now's the time to get out of longer-dated government bonds in developed markets.

After the midterms any logic that has so far prevented US President Donald Trump from taking actions that might drive energy prices up will fall away, Mark Dowding, fixed income CIO at BlueBay, said.

Trump’s administration also really doesn’t want to allow Iran to prevail in the conflict, although they also don’t want to put US boots on the ground, he added.

Iran’s IRGC know this – and therefore probably believe any bombing again them would only bring limited results, Dowding said, noting that Iran also has the ability to inflict damage in the region in response.

That all creates a risk of escalation in the coming weeks, which Dowding says “investors may be compelled to factor into their thinking and positioning in global markets.”

Escalations on both sides would be an additional upside to energy prices, exacerbating the global inflation shock.

“On this basis, we think that this is an opportune moment to close long duration positions in developed rates markets.”

(Sophie Kiderlin)

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