Bonds benefit from interest rate cuts

The second half of 2000 saw rallies in gilts and investment grade corporate bonds. Even high yield bonds rallied in December, but can 2001 maintain the same level of fixed income performance? The fundamentals continue to favour bonds. Gilts and interest rate sensitive investment grade corporate bonds should benefit from the likelihood that the only way is down for UK and US interest rates as data suggests a hard landing in the US and a moderate slowdown in the UK. Inflation remains controlled: the Retail Price Index excluding mortgage interest is now only 1.8%, its lowest level since rec...