Over the month of April 10 -year Chinese onshore government bond yields rose by 40 basis points. This movement can be explained by a modest economic recovery and picked up inflation. “We believe, however, that China is still far away from fully stabilizing and that the Chinese government will need to continue to support growth through fiscal and monetary policy”, said our fixed income specialist Althea. She also mentioned, although it seems that an agreement between the US and China is going to be reached shortly, it is unlikely that the US will completely remove its punitive tariffs. In this context, Chinese government bond prices will be supported in the medium term.
In the long run, Chinese sovereigns should also benefit from a gradual opening of the Chinese bond market through increased foreign demand. We believe that foreign investors will continue to find these securities attractive because Chinese government bonds are less correlated to other major markets while at the same time offering higher risk-adjusted returns in a yield-starved environment.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
