• Fed driving bond yields
• Bond market trend reversal ahead
The slump in prices on the bond markets hit conservative investors particularly hard. The investment, which is often used for diversification and is particularly preferred by investors who are less risk-averse, experienced a veritable sell-off this year – in line with the slump on the international stock markets. Bond investments are generally considered to be relatively safe, if not very profitable, investments.
Interest rates have risen significantly – bonds have fallen significantly
After falling for years on the bond market, interest rates have risen significantly this year. This becomes particularly clear when looking at government bonds – both from the USA and from Europe. The aggressive rate hikes that the US Federal Reserve has already taken and is apparently still planning in the future are responsible for the strong rise in yields. With the initiation of the turnaround in interest rates, the monetary authorities want to get the high inflation under control.
Conversely, rising interest rates cause bonds already in circulation to fall, and bondholders have felt this clearly in recent months. “It’s been painful for fixed income because bonds haven’t provided the portfolio protection that investors value,” CNN quoted Chip Hughey, managing director of fixed income at Truist Advisory Services.
Experts see a turnaround in the bond market
However, the expert believes that the situation on the bond market could ease up again in the near future. There is a perception in the market that the Fed is monetary policy may have had to tighten too tightly. This could put pressure on yields again going forward, Hughey explains.
Matt Smith, Investment Director at Ruffer, also expects the same thing, citing a slight easing on the inflation front as justification: “We have the peak of the inflation panic after the last CPI report [Verbraucherpreisindex, Anm.d.Red.] left behind. Investors can now feel safer in bonds. We are on the verge of surrender,” the expert told CNN.
The rise in yields on the bond market is not over yet, but will continue at a much more moderate pace. So agrees Steve Wyett, chief investment strategist at BOK Financial: “Most of the damage may have been done to the bond market,” he said, as yields fell after a peak later in the year.
While Henry Song, portfolio manager at Diamond Hill, doesn’t have an exact time for the market turnaround, he thinks the situation is currently a “much more attractive entry point for bonds, even if the bottom hasn’t been reached yet.” There is “a lot of upside potential,” he is quoted as saying by CNN.
Editorial office finanzen.net
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