Key drivers shaping bond markets have changed. Keeping a global perspective and knowing which macro signals to watch for can help you prepare for changes in bond yields.
Since last November, investors’ sentiment has turned into ‘risk-on’ mode, favouring risky assets and equities relative to bonds. The rise in global yields and the steepening of yield curves has fuelled fears about the end of the 35-year bond bull market.
Amid long yields that would climb marginally higher but at a slower pace, and short-term yields that will stay below inflation in many developed countries, investors scarcely have a choice when it comes to boosting the performance of their bond portfolios : either take on credit risk or duration risk. While the first choice seems obvious in light of the unanimous popularity of corporate and other high yield bonds in the market, the second choice is counter-intuitive at first glance.
Chris Iggo, CIO Fixed Income at AXA Investment Managers (AXA IM), discusses the short-term outlook for global bond markets highlighting the importance of the upcoming US presidential election and its resulting impact as well as current positive trends in emerging markets (EM).