Macroscope | How Asia’s bond markets have withstood rising global inflation
- Although the region has not been immune to Covid-19 economic shocks, shorter lockdowns and more cautious reopening have kept core inflation rates comparatively low and bond yields positive
Bond investors will be glad to see the back of 2021. The Bloomberg Global Aggregate Index, a leading gauge of investment grade government and corporate debt, delivered a negative return of 4.8 per cent this year, its worst performance since 1999.
In the United States, which comprises 38 per cent of the index, bond prices have fallen sharply, with the yield on two-year Treasury bonds – which is sensitive to interest rate expectations – surging since late September to 0.75 per cent.
The US Federal Reserve, which is contending with an inflation rate that hit a four-decade high of 6.8 per cent last month, now accepts that it underestimated the severity of the inflation shock and anticipates as many as three rate hikes next year.
In Bank of America’s latest fund manager survey, published on December 14, the hawkish pivot by central banks and the surge in inflation were cited by respondents as the two biggest threats to asset prices.