Global bonds have plunged more than 20 percent from recent highs into a bear market for the first time in a generation, as central banks around the world are willing to risk a recession to raise interest rates to fight inflation.
The Bloomberg Global Total Return Index, which tracks government bonds and investment-grade corporate bonds, has retreated more than 20 percent from its 2021 highs, escaping into a bear market for the first time since its inception in 1990.
Central bank policymakers in the U.S. and Europe, including Federal Reserve Chairman Jerome Powell, have recently expressed a strong hawkish stance. Hot inflation and aggressive interest rate hikes by central banks in many countries have ended the bullish trend in the bond market. Since both the stock and bond markets have fallen this year, the investment situation is particularly grim this year.
“I think the 40-year bull run in the bond market is over,” said Stephen Miller, an investment adviser at GSFM, now a division of CI Financial, who has tracked the bond market since the 1980s. low.”
He believes that given the high global inflation, countries are unlikely to launch the large-scale monetary stimulus that has sent U.S. bond yields below 1%.
The strategy of “six stocks and debts four” failed?
The stock and bond markets fell synchronously, testing the “stocks, six bonds, four” rule that has been popular for at least 40 years. Bloomberg’s bond market index has fallen 16% this year, MSCI’s global stock market has fallen even more over the same period, and a U.S. indicator tracking the investment strategy of stocks, six bonds and four bonds has also fallen 15% this year and is expected to be the biggest since 2008. annual decline.
In many places, the current economy and policies are similar to those in the second half of the 1960s, when the bond market also entered a bear market. Inflation, which had been sluggish for a long time, rose and unemployment rose. After entering the 1970s, as inflation accelerated,10-Year U.S. Treasury YieldIt also surged, prompting then-Fed Chairman Paul Volcker to raise interest rates starting in August 1980, when rates were as high as 20%.
Powell said at this year’s annual meeting of global central banks that history has warned people not to ease monetary policy prematurely. Contract traders now see a nearly 70 percent chance of a three-yard (75 basis point) rate hike by the Fed at its regular September meeting in less than three weeks.
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