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Singapore - The 30-year-old bull market in bonds looks to be ending with a bang.
The Bloomberg Barclays Global Aggregate Total Return Index lost 4% in November, the deepest slump since the gauge’s inception in 1990. Gathering US economic momentum and Donald Trump’s election win - with promises of tax cuts and $1trn (R14.05trn) in infrastructure spending - spurred investors to dump debt that was offering near-record-low yields and pile into stocks.
Calling an end to the three-decade bond bull market is no longer looking like a fool’s errand: the Federal Reserve is expected to start raising interest rates - and do so more often than once a year, inflationary expectations are climbing and there are hints global central banks may be buying fewer sovereign securities going forward.
Investors pulled $10.7bn (R150bn) from US bond funds in the two weeks after Trump’s victory, the biggest exodus since 2013’s “taper tantrum,” while American stock indexes jumped to record highs.
“A lot of people are beginning to think that it is the end of the bull rally,” said Roger Bridges, the chief global strategist for interest rates and currencies in Sydney at Nikko Asset Management’s Australia unit, which oversees $14bn (R197bn). US 10-year yields may rise to 2.7% in January, Bridges said. “The trend is your friend.”
The rout wiped $1.7trn (R23.86trn) from the global index’s value in November, also a record, in a month that saw world equity markets’ capitalisation climb $635bn (R8.9trn).
The yield on 10-year US notes rose 56 basis points in November, the biggest jump since 2009, and was at 2.39% as of 14:16 in Tokyo on Thursday. The average yield on the Bloomberg Barclays Global gauge climbed to 1.61% on November 23, after touching a record low of 1.07% on July 5.
The rise in yields shows the limitations of the quantitative easing policies at the biggest central banks, Bridges said. Bonds will be especially vulnerable if the European Central Bank discusses reducing its debt-purchase program at its December 8 meeting, he said.
