JPMorgan expected global bond yield to slightly shrink in 2023 as the balance between demand and supply will improve by $1 trillion. The firm estimated deterioration of about $700 billion in demand next year, compared to 2022. Meanwhile, bond supply will likely drop by $1.6 trillion.
JPMorgan said that the worst may soon be behind global bonds after bonds have slumped around the world this year, leading to the first bear market in a generation.
“Based on the historical relationship between annual changes in excess supply and the Global Aggregate bond index yield, a $1 trillion improvement in the demand/supply balance would imply downward pressure on Global Aggregate yields of around 40 basis points,” J.P. Morgan strategists, led by Nikolaos Panigirtzoglou wrote in a note.
JPMorgan saw that the main reason for a deterioration in bond demand was due to major central banks trimming their balance sheets this year. More importantly, a selloff by commercial banks and retail investors showed a record that surpassed the Wall Street bank’s estimation.