How to profit from bond turbulence

Central banks have blown a bond bubble which could end in disaster. So if you own bonds or bond funds, where are you most exposed and what can you do about it? Paul Amery investigates.

As I noted in January, five of the top seven European exchange-traded funds (ETFs) last year by sales were bond funds, suggesting the type of exuberance that often signals a market top. Sure enough, in the last three weeks we've seen the biggest outflows from bond ETFs since 2008. The Bank of England's director of financial stability, Andrew Haldane, admitted recently that central banks have blown a bond bubble.

Near-zero interest rates and quantitative easing have caused investors to do two things: assume central banks have taken away market risk; and chase yield by buying any bonds, the junkier the better. But I agree with Haldane that this is a potential recipe for disaster. So if you own bonds or bond ETFs, where are you most exposed and what can you do about it?

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Paul Amery

Paul is a multi-award-winning journalist, currently an editor at New Money Review. He has contributed an array of money titles such as MoneyWeek, Financial Times, Financial News, The Times, Investment and Thomson Reuters. Paul is certified in investment management by CFA UK and he can speak more than five languages including English, French, Russian and Ukrainian. On MoneyWeek, Paul writes about funds such as ETFs and the stock market.