An accelerating decline in bond markets is bringing fresh pain for fixed income investors in a year when global bonds have already lost a fifth of their value.
“This is the worst year in history by far for fixed income,” said Lawrence Gillum, fixed income strategist for LPL Financial. “If that’s not a bear market in bonds I don’t know what is.” Many investors are betting the weakness in bonds will continue as central banks tighten monetary policy to bring down inflation in the United States and across the world.
Gregory Whiteley, a portfolio manager at DoubleLine, believes U.S. inflation, which showed signs of ebbing in the latest consumer prices report, will likely persist, taking two-year yields to 4%. Longer-dated Treasuries, however, may be nearing a bottom, he said. Hyman believes additional pressure on bonds could come as the Fed reduces its balance sheet, a process known as quantitative tightening that hits its full stride in September as the central bank trims $95 billion a month from its holdings.
Gene Tannuzzo, global head of fixed income at Columbia Threadneedle Investments, is betting declines in the housing market and weaker car sales are the first signs that the Fed’s rate hikes are filtering through the economy. He is favoring high-grade corporate bonds and mortgage-backed securities.