The global bond market is in a bear market for the first time in over 30 years

The global bond market is in a bear market for the first time in over 30 years
The global bond market is in a bear market for the first time in over 30 years

By Natasha Stassinou

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Explosive inflation and aggressive moves by central banks could only hurt the bond market deeply. The “hemorrhage” is such that for the first time in a generation, bonds worldwide were trapped in a bear market.

The Bloomberg Global Aggregate Total Return Index for government and investment-grade bonds is now trading 20% ​​below its 2021 highs. This is its biggest decline since it was created in 1990. The development comes as Jerome Powell, Christine Lagarde and other central bank chiefs signal that taming inflation is an absolute priority. This means that interest rate hikes will continue and they will be large, causing bond prices to plummet and their yields to jump.

The ECB next Thursday is expected to make its second rate cut this year – and it is likely to be in the range of 75 basis points, as inflation in the eurozone climbed to a new record high of 9.1% in August. If the estimate is confirmed it will further boost bond yields which have already rallied after Powell’s recent “hawkish” signal at Jackson Hole. The ICE BoFa Treasuries index of US Treasuries is heading for its worst annual performance ever, according to Reuters. As for European bonds, August saw the worst month in decades.

It is worth noting that thanks to the loose monetary policy followed in recent decades, bonds have essentially been in a sustained bull market (with only short breaks) since the late 1980s or so.

This year European bonds have received the strongest blow, since the cost of energy in the continent is at nightmarish levels, surpassing even the most gloomy scenarios that had been released. The least hit on the other hand has been the Asian bond market, which is benefiting from the easing of monetary policy in China. Bucking the mainstream and seeing the world’s second-largest economy slow sharply under the weight of lockdowns, China’s central bank has made two consecutive interest rate cuts in recent times. This easing provides much-needed support to the region’s government bonds, although the same is not the case for stocks. Morgan Stanley even warns that Chinese shares could “plunge” up to 20% if the pressures on China’s already-tested real estate market intensify.

A big test for the markets internationally will be the US employment data today. Economists polled by the Wall Street Journal estimate that the US economy added 318,000 new jobs in August, with the unemployment rate remaining at a 50-year low of 3.5%. Under normal circumstances investors would be thrilled to see this assessment confirmed. In today’s environment, however, it is possible that they will be frightened. And this, as WSJ analysts explain, because an impressive performance of the labor market would give the Federal Reserve even more courage to insist on a drastic increase in borrowing costs.

With information from Bloomberg, Reuters, WSJ, CNBC

The article is in Greek

Tags: global bond market bear market time years

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