Self-funded retirees and superannuation funds are heading for rocky times with higher than normal stock market volatility as the market moves from higher risk stocks and shares to bonds, QUT finance expert Dr David Willis said.
Dr Willis, from QUT Business School, said these groups’ returns could take a significant dip as the effects of a rushed switch to bonds combine with the RBA setting record low interest rates that are also exhausted.
“It is becoming apparent that quantitative easing (the process by which central banks buy bonds from banks in exchange for cash) by the European Central Bank and the Bank of Japan is coming to an end,” Dr Willis said.
“This is because the availability of high-quality and quantity bonds is becoming exhausted.
“This will mean that the downward pressure on medium to long term bond rates that’s been used as a policy tool to try and stimulate the EU and Japanese economy, and indeed the rest of the world, could be coming to an end.”
Dr Willis said long-term bond interest rates would rise, leading the stock market to correct as the market sells higher risk stocks and shares in favour of bonds.
“The view that the US Federal Reserve will increase interest rates this year further suggests it’s time to buy bonds and sell stocks.”
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