Global bond yields will remain at low levels throughout the year, according to research from Towers Watson.
The global professional services firm’s December global markets overview said that bonds were at risk of market-to-market losses in the medium term, due to risk-aversion and low global cash rates. However, the pessimistic forecast was not permanent.
“On a valuation basis we continue to believe that high quality bond markets continue to discount an excessively pessimistic path for growth and real cash rates,” the report stated.
“Whilst we continue to rate markets as highly unattractive, this remains a truly medium-term view.”
Towers Watson said global equities remained a favoured investment choice in the current market with a moderately attractive rating, but warned investors to remain cautious.
“Our forecasts are for moderately more positive economic and earnings conditions to transpire, indicating equities are reasonably attractively valued over the medium term,” the report said.
“The attractiveness of equity valuations still needs to be set against the economic and even risks that are still prevalent (especially related to systemic risks in Europe) and we expect equities to remain more volatile than their long-term average.”
Towers Watson said recent central bank monetary stimulation has helped reduce any near-term risks with equity investments, and that it favours equities over both bonds and credit in the current climate.
Towers Watson has continued a neutral rating for credit in the current market.
In its November report, Towers Watson moved global equities markets to a “moderately attractive” rating on its three-year horizon scale – up from a “neutral” rating in October.
