As innocuous as it seems, the recent volatility is a result of the move in real rates – that is, the yield on government bonds minus inflation.  Recent moves in the bond market have been historic. The 30-year US Treasury total return last week was -9.35% which was the worst week since at least 1973, when the data began. The immediate cause of this was the minutes of the December Federal Open Market Committee meeting in the US, which revealed that interest rates in the US are likely to be going up more quickly than many had anticipated in a reaction to stubbornly high inflation.


The weakness in fixed income markets has been accompanied by many investors selling high growth companies, particularly in the Technology sector and buying value companies such as banks.  Energy and commodity prices have also been strong which has resulted in sharp rises in the oil and mining companies as well.  Low exposure to Banks, mining and Oil companies in some portfolios have seen some relative underperformance from equity holdings in these funds.  However, recent surveys remain supportive of decent economic growth, and while this growth might be relatively slow, no one expects a recession.  Indeed, volatility is always an opportunity to add investment opportunities that are underpinned by secular growth and which have recently been sold off in sympathy with the macro environment.