Bond Outlook

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The Spectre Looming Over Bonds

 

A consensus trade that hasn’t worked too well in 2023 is to buy long duration government bonds. The US Treasury market has ranged sideways; Bunds have sold off, while UK gilts have retested their September 2022 ‘panic’ lows. Worryingly, the future outlook is not great. Although inflation is skidding, policy interest rates are likely to remain relatively high in the West, especially given robust economic data and underwhelming signs of corporate credit problems. On top, relying on foreign investors to buy the fast-rising coupon supply is becoming more problematic given geo-political tensions. Set against this backdrop, bond term premia are at or near historic lows. Odds are they could rebound and more than offset any plausible fall in policy rates.

 

 

See our latest published research, Global View: The Spectre Looming Over Bonds – 22nd July 2023

 

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