Global bonds are closing in on their worst month on record as investors brace for Federal Reserve’s rates hike in the coming week.
The Bloomberg Global-Aggregate Total Return Index has lost 4.9% in April, putting it on track for the biggest monthly drop since its inception in 1990.
Bonds tumbled on fears of faster than expected rakes hike by the Fed along with tension in Ukraine.
Swap traders are pricing in a half-point rate increase by the Federal Reserve on May 4 and also see the Reserve Bank of Australia and Bank of England raising borrowing costs next week.
“Until Fed pricing has run its course and stabilizes, global yields can rise further,” said Imre Speizer, a strategist at Westpac Banking Corp. in Auckland as reported by Bloomberg.
“Investors will be reluctant buyers of bonds as long as Fed rate pricing keeps moving higher, or until they are more confident about pricing an eventual economic slowdown.”
In the corporate debt universe, high-grade notes have lost 5.3% so far this month, according to a Bloomberg multi-currency global benchmark, putting it on track for their biggest monthly slump since March 2020 when the pandemic rocked financial markets.
“Stagflation remains our base case for the rest of the year as recession risk is increasing in Europe and central banks remaining committed to their course of policy normalization against the backdrop of very high inflation,” said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International.