Global bonds fall

As most central banks around the world continue to hike interest rates in an effort to combat inflation, global bonds have almost completely given back their gains this year. Bloomberg’s global bond index fell 2.9 percent through Tuesday, erasing most of its 3.3 percent rise in January. Last month’s rise was the index’s best January performance since it began measuring in 1990. Expectations for the Fed were particularly influential in these losses. The January employment, inflation and retail sales data released in the U.S. all supported expectations that the Fed will keep interest rates high for an extended period. After the U.S. S&P Global PMI manufacturing and services indexes beat expectations yesterday, the yield on 10-year U.S. bonds rose 14 basis points to 3.95 percent. Westpac Banking Corp. “Global bonds could fall further in the coming weeks due to the ongoing recalibration of the economic outlook and the Fed’s response function. The driving force here is the ‘higher for longer’ rhetoric for central bank rates. The US 10-year yield looks set for a move above 4%,” said Damien McColough, director of fixed income research.