Higher rates mean bonds are back in value

LOS ANGELES: Investors are finding value in bonds for the first time in a decade as higher interest rates make fixed-income attractive, according to Jpmorgan Chase & Co’s Bob Michele.

Yields on the benchmark Bloomberg bond aggregate index have soared to 4.7% from 1.75% at the end of 2021 as the Federal Reserve (Fed) embarked on an aggressive rate-hiking course to combat inflation.

With the Fed showing signs of slowing its rate increases, investors can expect more market stability, Michele, chief investment officer for fixed-income at Jpmorgan’s US$2.5 trillion (RM11.4 trillion) asset manager, said on Bloomberg Television’s Wall Street Week.

“Every wealth-management platform in Jpmorgan, every institutional client – they’re coming to us, they’re putting money in bonds,” Michele told host David Westin. “Bonds are back.”

Stocks barely budged during the week, with the S&P 500 losing less than 1%, down 17% so far in 2022. Bond yields rose with twoyear Treasuries ending the week at 4.53.29% and 10-year Treasuries at 3.82.88%, an inverted yield curve that often signals a future recession.

One ray of hope making a recession less likely is the result of the mid-term elections, with Republicans gaining control of the US House of Representatives while Democrats held the Senate, a situation likely to handcuff big policy shifts in Washington, Michele said.

“When there are dramatic policy changes, you have to reprice everything in the markets and it becomes destabilising,” he said.

“If we know we’re going to have gridlock, we can focus on bringing inflation down and trying to avoid a recession and have a soft landing.”