Long-term investment radar and its new prey: the bond market

The Bond Markets They lived through an unprecedented period. Now, the strong sales recorded since the beginning of the year, combined with the changing economic context Opportunities in global markets Fixed income for many experts. This, considering that in the past month, the returns for this asset class have already begun to decline due to Fear of getting into more than likely Recession economic.

As an asset class, fixed income is often considered The “boring cousin” of the stock, especially during the last decade of low yields. However, the past few months haven’t been boring, albeit for all the wrong reasons. Bonds hit a record lowBut now they can offer the most attractive valuations for many years, some fund managers note. Also, this syncs with a file The most supportive economic environment for this asset class.

devotion He specifies that the fixed income and credit market has become “very attractive” due to the massive decline seen “since the beginning of the year”. In his opinion, is Segment of the market that ‘really would have given up’ And that with a long-term approach, a very important attraction can be found.

Schroders believes that bonds offer good yield potential and have a diversified component.

In this sense, there will be three main reasons why bonds are particularly interesting at this time, according to Paul Grainger, Head of global fixed income and foreign exchange Schroders: “On the one hand, the valuations, as the levels of return are attractive again and there Good earning potential; On the other hand, the element diversification offered by bonds, especially in periods of economic instability; Finally, we believe that with inflation rising and growth slowing, interest rate increases will not be as high as bond market prices currently.”

The question is what led to the general downturn seen in the bond market since the beginning of the year. Between January 2021 and mid-May 2022, Global fixed income fell 17.6% (Bloomberg Global Compiled Bond Index), the largest drop since data for this market became available in 1990. To make a comparison, the drop between the maximum and minimum during the 2008 global financial crisis was -10.8%.

Since the beginning of 2022, the bond has faced autn scenery inflation high For several decades and changes in the position of the major central banks. change in rhetoric andMessages from policy makers have led to higher prices. In this sense, the narrative regarding inflation has taken a critical turn.

Before mid-2021, central banks were convinced that High inflation will be temporary, as a byproduct of demand and disruption to the supply chain that has been suppressed by the Covid virus. “However, policy makers They are increasingly uncomfortable with the continuing trend of inflationespecially given the indications that secondary effects are being transmitted to wage increases,” says Grainger. Add to that the uncertainty surrounding the war in Ukraine and the ongoing pandemic, with parts of China currently under strict embargo.

“From a purely economic or investment perspective, these factors Fueling already strong inflationary forcesAs additional supply-side constraints and interruptions drive up raw material prices,” the expert highlights from the British director.

annoying movement

It is not surprising that bonds have suffered under these conditions, but how quickly What they corrected was amazing. In some cases, evaluations have reduced entire business cycles within weeks. Fixed income disruption has been very high, which Opens the door to long-term inflows‘He maintains Morgan Stanley In a recent report.

The move was even more extreme given the starting point: unprecedented conditions with historically low yields, bond-making It looks unattractive from the evaluation point of view. This has decisively changed. According to experts, the current upheavals, although dangerous and worrying, provide more and more opportunities. “In our opinion,Ratings outperform macroeconomic fundamentalsGrainger says. “Over time, it should be reversed,” he adds.

In addition to the attractive potential returns, the expert believes that concerns about Downside risks to growth may come to the foreAs well as the advantages of bonds as a diversified asset compared to stocks. “The rewards are worth considering For investors seeking to overcome challenging global conditions and achieve profitability,” he says.