It has been a dismal first half for the global markets and global bonds are no exception, according to the recently published Global Markets Review. With more than a 15% decline for the Morningstar Global Treasury Bond Index and a 10% plus decline for the Morningstar US Core Bond Index, global bond investors have felt the pain just as acutely as equity investors in a year which has seen very few safe havens. At the same time, yields on both indexes more than doubled in six months due to inflation, interest rate hikes and global monetary tightening.
Yet global monetary policy activity may be driving a changing tide for global sovereign debt performance, according to new insight. Following an ongoing series of rate hikes by the US Federal Reserve, the ECB surprised investors last week with a larger than expected 50 basis point rate hike, its first rate hike in more than a decade. All eyes are back on the US Fed this week as it announces its latest rate hike, another 75 basis points largely as expected. In this environment, we’ve seen global bond indexes rally in recent weeks as bond prices go up and yields begin to retreat as investors seek safety amid hawkish global central bank activity and a rising probability of a recession. Month to date, all major Morningstar Treasury Bond indexes are in positive territory.
Katie Binns, Director, Fixed Income, Morningstar Indexes
“After a first half of the year with very little good news for global fixed income investors, the storyline could be changing for global sovereign bonds as we enter the second half of the year. The US Fed remains the key player in this storyline, of course, and all eyes will be on the FOMC and Chair Powell this week as they decide on their next interest rate move. And, while a soft landing for US and global markets is something that investors would like to see, it is not a guaranteed conclusion for Powell and company against a very challenging global market and economic backdrop.”
To speak with Katie Binns, please reach out to Tim Benedict at tim.benedict@morningstar.com or (203) 339-1912.
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