Bonds and Sydney Airport could both lose 20% in value

Chief Investment Officer and founder of Aitken Investment Management
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For the last 12 months, I have been warning about the capital loss risks in government bonds and “defensive” equities, as interest rates rise from historic lows. I am of the view that interest rates, inflation, and volatility have bottomed, while conversely, we believe the price paid for long duration bond sensitive “defensive” equities has peaked.

Last week, 10yr US Treasury Bonds rose in yield to a 7-year high of 3.12%, and US 30-year Treasuries rose to a 3-year high yield of 3.25%.

I believe this is the start of bond yields moving into a new higher trading range and it has widespread ramifications from portfolio construction and stock selection globally, through to variable mortgage interest rates in Australia. This is a global event as the cost of money rises and the risk-free rate rises. It affects everything directly and indirectly.

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