Dramatic rise in yields raises appeal of global bonds

Significance

This repricing of fixed income markets has caused the global stock of negative-yielding government and corporate debt to vanish -- it stood at over USD18tn in late 2020. Bonds are becoming more attractive despite persistent concerns about high inflation and the scope for further interest rate rises.

Impacts

• The US dollar index has fallen by more than 10% since end-September; it should stabilise ahead unless the Fed is more dovish than expected.
• Emerging market (EM) sovereigns have raised more than USD40bn on debt markets this month, but many fragile EMs struggle near debt distress.
• Developed-nation equity markets will struggle to rebound from a bruising 2022 despite investor hopes that inflation and rates have peaked.
• Bonds’ higher coupon payments are providing enough of a buffer against the risk of further falls in bond prices as central banks hike rates.
• US Treasuries enjoy strong demand as a safe asset; this will become more apparent as the political battle over the debt ceiling deepens.