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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.”

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