As inflation intensifies, medium-and long-term bonds fall most sharply
Investors in junk dollar bonds are one of the few winners in the fixed income market this year.
Us investors returning from the President's Day holiday on Tuesday will find that the subject of reflation is at full steam and the global bond market has fallen. How bad is this for fixed-income investors? Where can they find comfort?
It was the worst start to the year for the bond market in the Barclays Global Composite Index since 2013.Bonds began to fall in the first few months of the year.
William Dudley, a former president of the New York Fed, last week outlined why the Fed may have to withdraw its stimulus package sooner than expected, and markets could experience a new round of high volatility similar to that seen in the taper tantrum. The so-called downsizing storm means that bond yields soared in 2013 when Ben Bernanke, then chairman of the Federal Reserve, hinted that the Fed might start to reduce its asset purchases. Dudley said that many households have cash to spend and the economy should recover faster than in the previous round.
The yield on the 10-year Treasury note rose to 1.24% on Tuesday, the highest level since March last year.The spread between 10-year and 2-year Treasury yields reached its highest level since April 2017. The 10-year break-even inflation rate is the highest since 2014.
Long-term bonds have fallen the most so far this year, with the Barclays 5-10-year Treasury index returning-1.2% and 20-year bonds returning-6.8%, the worst start to the year since 2009.
Globally, US Treasuries with maturities of less than five years fell by less than 0.3 per cent and bonds with a maturity of more than 10 years fell by about 3.9 per cent, according to the Barclays global composite index.
According to compiled data, bonds issued by the UK and Austria led the list of declines in 2021, while Austrian bonds fell more than 3 per cent, and the country's 100-year eurobonds maturing in 2120 are down about 18 per cent so far this year to 107.5. Gilts with 25 years or more have fallen more than 10 per cent so far.
By contrast, Chinese government bonds outperformed those of other countries, with investor returns up 1.4% this year.
Although it still lost money in 2021, the overall return on corporate bonds exceeded that of government bonds. Corporate bonds are down about 1.8% so far this year, and investors in junk dollar bonds are one of the few winners in the fixed income market this year, according to the Bloomberg Barclays index.