Fixed income managers feel relevant once again following years of low rates that ended last year as central banks tightened monetary policy, temporarily causing a “bloodbath” in bond markets towards the end of 2022.
With central bankers raising rates to combat inflation, the resultant increased yields on bonds have given investors an incentive to stay in the market.
Bond managers argue that increased yields (for example, two-year Treasury notes moving from 0.7% to around 4.5% last year) can be accessed without substantial credit or interest rate risk. This is mainly in shorter-duration bonds for now, with perhaps longer-dated sovereigns catching up later in the year, say commentators in our fixed income report.
And following the “great repricing” in the market last year – again, driven by inflation – the correlation of bonds with equities is approaching a position where improvements can be expected, according to another bond manager.
Expectations for bond fund inflows remain high, and it is said that the bond market itself could rally towards the end of the year.
Nick Fitzpatrick, group editor, Funds Europe
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