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Global bond yields rise sharply in January

January 2018

Bond yields generally rose sharply in January as investors moved away from global fixed income, triggering speculation over the possibility of a bear market for bonds. The attractions of bonds appear to be wavering for some investors against a backdrop of tighter monetary policy, rising interest rates, and strengthening inflationary pressures. 

  • US tax reforms are expected to stoke inflation
  • The ECB halved the rate of its bond purchases
  • Global economic growth is expected to gain momentum this year

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Bond yields generally rose sharply in January as investors moved away from global fixed income, triggering speculation over the possibility of a bear market for bonds. Fixed income was the best-selling asset class during November 2017, led by persistently robust demand for funds in the £ Strategic Bond sector. Investors’ appetite for funds in the Global Bonds, £ Corporate Bond, and £ High Yield sectors was also strong. More recently, however, the attractions of bonds appear to be wavering for some investors against a backdrop of tighter monetary policy, rising interest rates, and strengthening inflationary pressures. Over January as a whole, the yield on the benchmark US Treasury Bond surged from 2.43% to 2.73%; recent tax reforms are expected to boost economic activity that will, in turn, stoke inflation.

“The attractions of bonds appear to be wavering for some investors”

The European Central Bank (ECB) halved the rate of its bond purchases in January from €60 billion per month to €30 billion, beginning a process that was announced in October 2017. The benchmark German government bond yield rose from 0.42% to 0.63% during the month.

Elsewhere, although the Bank of Japan (BoJ) maintained its monetary stance at its January meeting, investors are becoming more watchful that the central bank might start to scale back its aggressive programme of monetary stimulus measures. For now, however, BoJ policymakers do not appear to be close to normalising of its monetary policy. Over January, the yield on the benchmark Japanese Government Bond (JGB) increased from 0.05% to 0.08%.

Credit conditions in Asia are likely to be “stable” in 2018, according to credit ratings agency Moody’s. Moody’s expects Asia to remain the fastest-growing economic region in the world, underpinned by technological innovation, favourable demographics, “broad-based” economic growth and recovering global trade. Risks to the region’s prospects include rising trade protectionism, geopolitical tensions, and the possibility of tighter global financing conditions.

The World Bank expects global economic growth to gain momentum this year, supported by a “broad-based recovery”. The global economy is predicted to expand by 3.1% in 2018 and 3% in 2019. Growth in advanced economies is predicted to ease to 2.2% this year and 1.9% next year, whereas emerging & developing economies are tipped to grow by 4.5% in 2018 and 4.7% in 2019. Looking longer term, however, the World Bank is concerned whether the global economy can maintain its growth trajectory.


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