Bonds Rallied Globally, Suggesting Bull Sentiment of Selloff is Over

Investment-grade bonds globally has returned almost 1% in May, the first monthly gain since July, while US Treasuries are heading for their best month since November, according to Bloomberg indexes as reported by Bloomberg. A gauge of global corporate debt is set for its biggest advance since July, while emerging-market sovereigns from Mexico to Malaysia are also in the green.

Investors point to a bevy of reasons for the recovery. These include signs the global economy is in danger of recession, speculation the rush of central-bank interest-rate hikes are now largely priced in, and the simple fact yields have risen enough to make them attractive.

“I expect global bonds to deliver positive returns for the rest of this year,” said Akira Takei, a global fixed-income money manager at Asset Management One Co. in Tokyo, who has been buying Treasuries as reported by Bloomberg.

“Yields have fallen from their peaks because more and more investors see value in bonds. The worst of the bond market is behind us.”

The rally in bonds has already pushed U.S. 10-year yields down to 2.84% from a three-year high of 3.20% set in early May.

“It’s a good time to increase your allocation to fixed income,” said Tai Hui, chief Asia market strategist in Hong Kong at JPMorgan Asset, which oversees $2.5 trillion. “With the valuation de-rating in fixed income — if you look at credit spreads, if you look at risk-free rates — the fixed income world is starting to look attractive again.”

“Credit investors should position for a potentially bumpy ride over the foreseeable time horizon,” said Paul Lukaszewski, head of corporate debt for Asia Pacific at abrdn in Singapore. “We continue to see China as our biggest source of credit risk in Asia.”