Why bonds are the best since the financial crisis

investmentnews.com:

The prospect of global interest rates remaining higher for longer is tipping the case for many investors to switch into bonds from stocks.

Fixed income offers a 180-basis-point yield premium over the dividend returns from stocks, according to data compiled by Bloomberg. That’s the widest in 15 years, and the gap is likely to persist or even widen as traders bet that the era of low rates has come to an end. 

Investors willing to make that switch have had to stomach a brutal bond selloff that shows few signs of easing. The latest EPFR Global data suggest that the shift, even if costly in recent months, is happening as debt funds reeled in their 21st consecutive week of inflows, while their stock counterparts recorded outflows of around $2.2 billion. In major markets, investors expect yields to return to levels seen before the global financial crisis. 

“Even the investment-grade bonds are giving you equity-like returns,” with half the volatility, Sanjay Guglani, chief executive officer at Silverdale Capital Pte Ltd., a Singapore-based fund manager who manages about $1 billion of assets, told Bloomberg Television. “This is a dawn of a new era for fixed income, we never had such a fantastic yields for almost 20 years.”

Global bonds are offering an average yield of 4.0%, data compiled by Bloomberg show, almost twice as much as the 2.2% dividend return for the MSCI ACWI Index. Fidelity International points out that positive real yields make the case for Treasuries even more compelling.

The next cue for traders is likely to come when the world’s top central bankers gather at the annual Jackson Hole symposium from Thursday to discuss the outlook for monetary policies. Federal Reserve Chair Jerome Powell is slated to speak Friday.