Global Bond Markets Go ‘Mad’ as Everything Rallies at Once

Whether you call it “Japanification,” a dash for safety or a bet on the Fed’s new normal, bond bulls are charging into some of the most notorious corners of developed debt markets. As benchmark Treasury yields trade at December 2017 lows and those on German bunds sink deeper into negative territory, century bonds riddled with interest-rate risk are suddenly one of the market’s biggest outperformers. And the market value of the world’s investment-grade and high-yield bonds has jumped by almost $1.6 trillion to $55 trillion in the past three weeks, with the index racing toward record highs, according to Bloomberg data.

Investors have vanquished their rate fears and now see central banks spoon-feeding returns through the rest of the credit cycle as the Treasury yield curve flashes recession fears. Take negative-yielding debt. Often cast as the poster child for financial repression, it’s in line for gains as inflation goes AWOL. If anything, the concern is that with price pressures so muted and growth so weak, yields can keep falling and locking in rates now may pay off.

The $9.8 trillion Bloomberg Barclays Global Aggregate Corporate Index is fast recovering from last year’s meltdown, yielding less than 125 basis points above Treasuries — below the five-year average. “Credit should not do well when the yield curve is inverted and recession fears heighten,” Emons wrote in a separate note. “Yet, inverted yield curves, recession and rate cut expectations has driven credit spreads tighter.”

Global Bond Markets Go ‘Mad’ as Everything Rallies at Once, Bloomberg, Mar 28