By Jenna Barnard, CFA
Jenna Barnard, Co-Head of Strategic Fixed Income, shares her latest views on the bond market, explaining what she sees as possibly the early innings for an intermediate, cyclical, sovereign bond bull market.
Jenna Barnard: It is Thursday, the 14th of March, and I wanted to provide an update on the bond market from the Strategic Fixed Income desk. The first thing to say is that we remain bullish on duration. Longer-dated interest rate risk in the developed economies looks an attractive place. Growth is slowing, inflation is slowing and central banks are pivoting dovish. In certain economies, there is a risk of a hard landing, driven by the consumer. Places like Australia, in particular, but also Canada is starting to be of renewed interest. So duration is an interesting and I think attractive place. Technically, we saw some of the first monthly buy signals in 10-year bond yields last December that we have seen in really four or five years. Places like the U.S., Canada, Australia, even German Bunds registered some very interesting technical buy signals. So we may actually be in the early innings of this intermediate, cyclical, sovereign bond bull market.
But as I said earlier, there is a risk of a hard landing in certain economies, driven by consumer retrenchment and housing markets.
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Fixed income securities are subject to interest rate, inflation, credit and default risk. As interest rates rise, bond prices usually fall, and vice versa. Foreign securities, including sovereign debt, are subject to currency fluctuations, political and economic uncertainty, increased volatility and lower liquidity, all of which are magnified in emerging markets.
Duration measures a bond price's sensitivity to changes in interest rates. The longer a bond's duration, the higher its sensitivity to changes in interest rates and vice versa.
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