Bearish Conditions for Global Bond Markets

October 9, 2018 6:13 am Published by Leave your thoughts

The global bond market is suffering, and there doesn’t seem to be relief in sight. People have long sought after traditional investment products for stable and lower risk asset classes. The most widely invested in fixed-income products are treasury bonds and mutual funds. ETF-traded bond funds have been very popular over the past two years. However, in the present bond market, the value of investment-grade debt with increasing interest rate yields have taken a beating. “…The Bloomberg Barclays Multiverse Index, which captures investment-grade and high-yield securities around the world, slumped by $916 billion last week.” Bloomberg When I read that iShares TIPS Bond ETF, designed to protect against inflation, is down over 2 percent this year in total returns, I was alarmed. It’s a strange scenario to have a bear market for bonds during an extended period of economic growth such as we’re experiencing.

Whenever we see record lows on traded bond shares that are breaking decades-old records, it’s easy for investors to fear and, of course, move to growth and value products. However, we know that the worst isn’t imminent because the rising borrowing costs haven’t hit Corporate America yet. A record $1.2 billion exited the iShares iBoxx High Yield Corporate Bond ETF on Friday. iBoxx is a basket of debt holdings from the top 999 corporations in the country. If operational costs broadly increase due to financing expenses and hiring, economic outlook can change very quickly. Both key factors to watch as we near the fall mid-term elections and year’s end.

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This post was written by Daniel Jones

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