Macroscope | Why everybody was wrong in calling the bond market
‘This would not be the first time that investment strategists calling an end to the 30-year-long bull run for fixed income misjudged the market’
In the days and weeks following Donald Trump’s upset victory in the US presidential election in early November, the talk in financial markets was of a “regime change” in asset allocation. Trump’s reflationary economic policies would, it was claimed, trigger a “great rotation” out of fixed income and into equities in anticipation of stronger growth and inflation.
For a month or so following the election, the “Trumpflation trade” was in full swing.
In November, the Bloomberg Barclays Global Aggregate bond index lost a whopping US$1.7 trillion, its worst performance since 1990, as the yield on benchmark US 10-year Treasury bonds surged 55 basis points between November 8, the date of the election, and November 30.
The much-feared bear market in bonds has yet to materialise
The sell-off in bonds continued for most of December, with the 10-year yield hitting 2.6 per cent on December 15, its highest level since September 2014, amid a surge in speculative bets that Treasury prices would continue falling.
Yet since mid-December, the 10-year yield has moved sideways, and has even fallen more than 30 basis points since the Federal Reserve’s decision on March 15 to refrain from accelerating the pace of monetary tightening this year.
The much-feared bear market in bonds has yet to materialise.
This would not be the first time that investment strategists calling an end to the 30-year-long bull run for fixed income misjudged the market.
