Investors abandon betting on bonds

new york — After all central bankers have done since the financial crisis to prop up bond prices, it didn’t take much for them to send the global debt market reeling.

Bonds worldwide lost 2.9 per cent this month through October 27, according to the Bloomberg Barclays Global Aggregate Index, which tracks everything from sovereign obligations to mortgagebacked debt to corporate borrowings. The last time the bond world was dealt such a blow was May 2013, when then-Federal Reserve chairman Ben S. Bernanke signalled the central bank might slow its unprecedented bond buying.

Europe led the losses that reverberated worldwide last week as signs of accelerating inflation and economic growth spurred speculation that the European Central Bank (ECB) and its major counterparts are moving closer to curbing monetary stimulus, including asset purchases. The result is that investors are abandoning one of the year’s biggest trades — a bet on higher-yielding, longterm bonds — as they wake up to the limits of central-bank demand that drove bond yields to record lows as recently as July.

“Portfolios, banks and hedge funds stocked up on these government bonds on the belief that global central banks would be buying them for years,” said Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings in New

Portfolios, banks and hedge funds stocked up on these government bonds on the belief that global central banks would be buying them for years

Tom di Galoma, MD of government trading and strategy at Seaport Global Holdings

York. “Now, there has been a shift in central-bank policy globally.”

In a year in which global bonds have earned more than six per cent, it’s been months since yields were this high in major economies. Yields on 10-year gilts reached 1.31 per cent, the highest since June 23, the day of the UK vote to leave the European Union. Similar-maturity German bonds were set for their worst month since 2013, pushing yields to 0.217 per cent, a level last seen in May. US 10-year Treasury yields touched about 1.88 per cent, the highest since May.

Turbulent times

There’s potential for more turbulence ahead. This week brings interest-rate decisions from the Bank of Japan, the Fed and the Bank of England. Then on November 8, Americans go to the polls to choose a new president.

Partly to get ahead of all that, companies including yogurt-maker Danone and Honeywell International sold about $62 billion of bonds worldwide last week, the most since mid-September, according to data compiled by Bloomberg. — Bloomberg