Under pressure from central bankers determined to end inflation even at the cost of a recession, global bonds fell into their first bear market in a generation.
The Bloomberg Global Aggregate Total Return Index of government and investment-grade corporate bonds has fallen more than 20% since its 2021 peak, the biggest drop since its 1990 inception. Officials from the US to Europe have emphasized the importance of tighter monetary policy in recent days, based on a strong message from Federal Reserve Chairman Jerome Powell at the recent Jackson Hole symposium.
Rising inflation and the steep rise in interest rates deployed by policymakers in response have ended a four-decade bull market in bonds. This has created a particularly difficult environment for investors this year, with bonds and stocks sinking together.
“I suspect the secular bull market in bonds that began in the mid-1980s is coming to an end,” said Stephen Miller, who has covered fixed income since then and is now at GSFM, a unit of Canada’s CI Financial Corp. Work as an investment advisor. Yields are not going back to historic lows seen before and during the pandemic.”
The high inflation the world is now facing means central banks will be unwilling to implement the kind of extreme stimulus that helped push Treasury yields below 1%, he said. .
for fixed income together in one fell swoop and equity asset Have been underpinning a mainstay of investment strategies for the past 40 years or more. Bloomberg’s bond gauge is down 16% in 2022, while MSCI Inc. A major decline has been seen in the index of global stocks.
It has pushed a measure of the classic 60/40 portfolio — where investments are divided by those ratios between stocks and bonds — down 15% so far this year, on track for its worst annual loss since 2008.
back in the 60’s
In many ways the economic and policy realities investors now face with the bear market for bonds in the 1960s began in the latter half of the decade when a period of low inflation and unemployment abruptly ended. As inflation accelerated in the 1970s, the benchmark Treasury yield increased. They later rose to around 16% in 1981, after then Fed Chairman Paul Volcker raised rates to 20% to ease price pressure.
Powell cited the 1980s to support his aggressive stance at Jackson Hole, saying “the historical record strongly warns against premature lax policy.” Swap traders now see a nearly 70% odds that the Fed will deliver a third-straight increase of 75 basis points when it meets in just three weeks.
Other central bankers from Europe to South Korea and New Zealand to Jackson Hole also indicated that the rapid rise in rates would continue.
Still, fixed-income investors are showing much higher demand for government bonds as yields have risen, aided by hopes that policymakers will need to reverse course, helping to quell inflation from the economic downturn. . In the US, options markets are still pricing in a cut of more than 25 basis points over the next year.
Steven Oh, global head of credit and fixed income at Pinebridge Investments LP, said, “I would characterize the current trend not as a new secular bond bear market, but as a necessary correction from a period of precariously ultra-low yields. ” Our expectations are that by long-term historical standards, yields will remain low and the current cycle of 2022 is likely to represent the peak in 10-year bond yields.”
This story has been published without modification in text from a wire agency feed. Only the title has been changed.
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