Bond rates

Just heard on newstalk this morning that bond investors have had their worst performance since 1990. Investors are taking money out of bonds to put into equities now due to the effect of high inflation on bond prices
 
But global equities should be compared to global bonds not euro zone bonds. Euro zone equities have had an incredible run recently because investors are now looking for value stocks not bonds or growth stocks.
The global equities index has a very high component of us tech stocks which like bonds are not performing in this high inflation environment.
As regards eurozone bonds they probably have not sold off to the same extent as global bonds due to the ecb
(really Christine Lagarde actually as there are now bundesbank dissenters on the ecb board)
Insistence that eurozone interest rates will not rise this year, instead they are allowing the euro to fall in value which will only exasperate inflation in the future
 
joe sod said:
Euro zone equities have had an incredible run recently because investors are now looking for value stocks not bonds or growth stocks.
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The total return on the FTSE Developed Eurozone Index (EUR) in the first quarter of this year was -8.9%.

The total return on the FTSE Developed (Ex-Eurozone) Index (EUR) was -2.4% over the same period.
 
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I just had a look at that ftse developed euro index, yes it has fallen as you say in 2022 but has doubled in value since May 2020. I think the short term movements in eurozone equities versus eurozone bonds is ukraine war related in that short term the market thinks that the ecb will delay raising interest rates because of the ukraine war.

However bonds have had an incredible run over the last 40 years and especially over the last decade with negative interest rates, eurozone equities have done very badly compared to their historical relationship with bonds and the risk you take with equities.
It seems that finally inflation is back and that an awful lot of money invested in the bond markets will need to find a new home over the next decade. If funds simply reduce the component of their portfolio invested in bonds due to the eroding effect of inflation that will have a dramatic effect.
 
There are so many different indices around, often with similar names, it would help to give the exact code of the index you are referring to and who publishes it
 
jpd said:
There are so many different indices around, often with similar names, it would help to give the exact code of the index you are referring to and who publishes it
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I was referring to the FTSE Developed Eurozone Index, which is published by FTSE Russell. Indices don't have codes.
 
Sarenco said:
Eh, no it hasn't.
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Yes you are correct, I had a quick look at that index chart on my phone and the years compressed together , it's still had a great performance since the pandemic albeit not as good as us growth or tech stocks.

The point is the sectors that have done so well since the financial crash like bonds and tech are not going to do well now in the high inflation era we are now in.
People are worried about a possible collapse in the stock markets but what they really need to be concerned with is the collapsing value of money which is ongoing but has now accelerated with high inflation rates.
Locking money into low or negative yielding bonds while successful for a long time is not going to work now
 
joe sod said:
The point is the sectors that have done so well since the financial crash like bonds and tech are not going to do well now in the high inflation era we are now in.
People are worried about a possible collapse in the stock markets but what they really need to be concerned with is the collapsing value of money which is ongoing but has now accelerated with high inflation rates.
Locking money into low or negative yielding bonds while successful for a long time is not going to work now
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Bonds and Equities have done well due to QE; there's been a massive global increase in money supply since the 2008 crash. Now that QE is stopping things will change. Better minds than mine can predict what that change will look like.
 
Purple said:
Bonds and Equities have done well due to QE; there's been a massive global increase in money supply since the 2008 crash. Now that QE is stopping things will change. Better minds than mine can predict what that change will look like.
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That's true, there is an ecb meeting on Thursday ,will be interesting to see what Christine Lagarde says this time regarding inflation and interest rates. The market does not believe what the ecb is saying about not raising interest rates this year as yield on bonds are rising as their values fall anticipating interest rate rises.
The main thing is to be invested in stocks that make prenty of money today not tomorrow.
 
The bond market is not a proper indicator anymore of whether a recession is coming mainly because it is no longer a proper functioning market. The biggest participants are now the central banks and governments so it is effectively controlled by government who need it in order to source vast amounts of funding. You just have to look at the difference between actual interest rates on government bonds and the inflation rate. If the market was functioning normally interest rates on European government bonds should be much higher in order to compensate investors for the much higher inflation rate but the interest rates are being held down.

Another factor is that since the financial crash banks and financial institutions are mandated to invest a large proportion of their capital in "safe assets" in other words government bonds, that is why you are getting zero interest on your deposit accounts even though inflation is running north of 5 %, by leaving money for long periods in deposit accounts you are effectively giving your money to the government

If inflation continues to run hot and the central banks do not let interest rates rise the suspicion is that price controls will be introduced in order to dampen inflation, we are firmly in the era of "big government".
 
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Rory Gillen had an interesting blog today about the coming interest rate rises, inflation and the performance of the Bloomberg eurozone government bond index since December 2021. Apparently it's down 12% so far this year as bond prices fall with rising interest rates. Of course stocks especially US growth stocks are down a lot more. However his point was that balanced portfolios of bonds and stocks are no longer working after this prolonged spell of ultra low interest rates. You just have to look at the 1970s bond markets to see what can happen to fixed income securities in an era of ultra high inflation driven by high energy prices and international instability caused by the Ukraine war.
Of course the warnings have been there for a good few years that interest rates were bound to rise but because it took so long for it to happen many investors ignored those warnings and people were talking about a new era of cheap money for ever more. The pandemic seemed to confirm this when bonds had there last big blow out after the 40 bond year bull market.
 
BilliamD75 said:
It's the start of 2019 and the ntma have sold 4 billion 10 year bonds at 1.123.
Remember the rate at the start of the year. Now if you are a bond/hedge or pension fund manager would you lock up 4 billion of 10 year notes at 1.123 rate which is less than inflation when you can deposit it at the fed for a better rate with easy access
We know European banks are depositing excess cash through subsidiaries at the fed as the over night deposit rate is negative at the ecb. Who bought the debt., now I am a bit of the wall and it's just an option but did the ntma repurchase the debt with its excess cash waiting for an external enemy like brexit to blame for raising rates. Answers on the back of an envelope please.
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Interesting to read through this thread again and to see how things have changed since 2019. After 2019 incredibly bond yields continued to fall and the covid money printing turned out to be the absolute low of interest rates. Some are saying 2020 was the absolute low in interest rates that will never come again. So those 10 year government bonds looked good until 2020/21 but now they are underwater but not as bad as those issued in 2020. Anyone wondering why their "low risk" pension fund has fallen since 2020 it is because it is loaded up with these low yield bonds that are now underwater'
I hear talking heads talking up bonds saying Oh now is the time to invest in bonds because they are now offering attractive interest rates, but they are still below inflation rates and inflation is not falling therefore bonds will have to offer higher interest rates in the future. We are in a bond bear market that looks nowhere near the bottom.
 
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