Global markets are nearing the end of a catastrophic year since 1999 after global inflation disrupted an economy that has nothing to do with inflation.
The Barclays global aggregate bond index – the largest $ 68tn indicator for private and business loans – has returned a negative return of 4.8% so far in 2021.
The downturn has been largely driven by a two-pronged sale of government debt. Earlier this year, investors lost long-term government bonds in so-called “reflation trade” as they bet that recovery from the epidemic would lead to a period of continuous growth and rising prices. Then, in the fall, long-term debt rose sharply as central banks showed they were ready to respond to rising inflation and rising interest rates.
In the US, which is one-third of the index and saw a rise in inflation to 6.8% in November, 10-year U.S. Treasury yields rose 1.49 percent from the previous 0.93 percent. for the year, reflecting the decline in bond prices. Two-year yields have risen to 0.65 percent from 0.12 percent.
“We should not be surprised that bonds are a bad currency when inflation is moving at 6 percent,” said James Athey, history manager of Aberdeen Standard Investments. “The bad news for bond investors is that next year is also looking tough. We have a chance to surprise again if central banks are moving faster than we expected, and I don’t think so. [riskier bonds] are very valuable. ”
During the 40 years of the rise in bond markets, the years of erroneous recovery have been limited and intermediate. The global index fell short in 1999, when it lost 5.2 percent as investors fled the bond market to the fast-growing dotcom market.
Despite the loss of 2021 and the prospect of next year’s financial growth from the Federal Reserve and other central banks, some fund managers argue that it is not too late to call time on the 40-year market to earn a steady income.
Long-term yields reached a peak in March and declined even as markets rose in price at three levels from the Fed and four from the Bank of England next year, as well as a reduction in European Central Bank purchases.
The recent rise in long-term debt is an indication that investors believe that central banks will disrupt the resumption of the economy, or trigger a market crash, if they move to tighten the policy more quickly, according to Nick Hayes, the company’s history manager. Axa Investment Managers.
“The higher the price these days, the more likely it is to return in a few years,” Hayes said. “And if the equity market recovers a bit, people will suddenly love bonds again. I’m not saying we’re going to double the numbers next year, but the truth is that if you look back decades, a bad year is followed by a good one.”