Negative real yields to support Asian bonds, but investors need to remain cautious

THE pool of government bonds that provides higher than zero real return is shrinking. This should push income-seeking investors to emerging-market and Asian bonds, supporting demand for these assets.

Central banks around the world have pledged to keep monetary policy accommodative for as long as needed to bring about an economic recovery, flooding economies and financial markets with liquidity, and they seem willing to supply this support well into the future.

Last month, Federal Reserve chair Jerome Powell announced a switch in the central bank's policy, relaxing its stance on the 2 per cent inflation target. Market participants took that statement as a promise by the Fed to keep interest rates low for years to come.