Global bonds on course to erase 2023 losses
Global bonds have been such a kicking post in recent months that it may come as something of a surprise they are just a fraction away from erasing this year’s loss.
The Bloomberg Global Aggregate Bond Index jumped 1.3% Tuesday, the biggest one-day gain since March, following weaker-than-expected US inflation data. The gauge, which was down by as much as 3.8% for the year less than a month ago amid the higher-for-longer narrative, is now just 0.3% lower for 2023.
The global index, which tracks more than $61 trillion, powered ahead as the US inflation numbers spurred traders to erase bets on any further Federal Reserve interest-rate hikes and to boost wagers on lower borrowing costs. The soft data added to signs the steepest tightening cycle in a generation is set to slow economies worldwide and push central banks toward rate cuts in 2024.
“It doesn’t matter now what the Fed says about holding rates higher for longer, it’s likely to start a gradual easing cycle in the first half of 2024,” said Kellie Wood, deputy head of fixed income at Schroders Plc in Sydney. Schroders is long two-year Treasuries and is also favoring Australian and European rates on a bet that global bond yields have peaked, she said.
Markets are now pricing in more than half a percentage point of rate cuts by July, about double the amount they anticipated at the end of October. The US core consumer price index, which excludes food and energy costs, increased 0.2% in October from September, less than the median forecast of 0.3% in a Bloomberg survey.
US two-year yields slid 20 basis points Tuesday after the data was published, while those in Germany fell nine basis points. Australia’s three-year yields slipped 12 basis points when they opened Wednesday,
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