BILS - Investors' Wants Can Be Very Different From Their Needs

• As most financial asset returns continue their relentless march higher in 2021, amid new waves of fiscal and monetary stimulus, investors are increasingly being forced to confront the growing tension between their wants (assets purchased with a margin of safety) and their needs (income).
• The source of that tension? The very policies aimed at arresting the disruptive impact of the pandemic on financial markets last year.
• Investors generally want to buy more bonds at higher yields and fewer bonds at historically low yield levels. However, what they often need to do is to meet income requirements in order to match liabilities. Hence, investors are often forced to buy more bonds at lower yields, such that they end up being overweight when yields are at their lowest.

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