Investment: Will bonds crash as shares rise?

Tim Price: In a normal market, maybe. But not in this one

UK base rate squats at 0.5 per cent, its lowest level in history — or since the formation of the Bank of England in 1694, which is much the same thing. With sporadic signs of inflation and patchy evidence of recovery, plus a new broom at the Bank of England who is expected to be boldly interventionist, the financial chatterati are transfixed by the prospect of the ‘Great Rotation’. This much-anticipated shift out of UK government gilts, and bonds more generally, back into equities reflects expectations that bond prices are due for a fall because interest rates must inevitably rise, while shares are overdue for an upswing. There’s only one problem with this thesis. It’s nonsense.

Admittedly, market forecasting is now virtually impossible, courtesy of the same blanket manipulation of securities prices by central banks that is keeping the yield on government bonds so low in the first place.