A bit of a strange question maybe but the following: Bonds are a classic hedge for an equity strategy and plenty of published strategies use bonds as a blind hedge without considering whether bonds have a positive return.
Now all classic knowledge aside about hedging: FastForward 2015. We have historically low interest rates and during the last 5-6 years we have had a strange phenonomen that interest rates went to zero and hence the bond value is now historically high. Aside some historical / regional anomalies with negative interest rates, we just know that interest rates will go up and bond values will come down.... steeply. Next to mathematical reason bond values will come down, the bonds have been such a safe haven that there probably is more money then usually (as a ratio) invested in bonds, hence a double whammy when the bonds will go down steeply... money will flow out and will flow somewhere (where we don't know) but we do know that this will increase the pressure on bonds.
So... if we are going to use bonds as a blind hedge we might hedge our strategies into negative returns faster then keeping the equities.
Hence my question..... I cant go short as the Ozzie fed has a chip on their shoulder... Bonds are out... now what?
