In recent weeks, investors have been reminded how supposed risk-free assets, like Treasuries and bunds, can still inflict substantial losses. So far in the second quarter of this year, 10-year yields have risen by nearly 0.48 per cent in Germany and by 0.31 per cent in the US.
As a result, the JPMorgan GBI Global bond index is down 2.72 per cent in the year to date. With bond yields expected to drift higher as global growth and inflation pick up, this will continue to be the case. Puchasing bonds with wafer-thin yields means there is no cushion for capital losses.
Even locking in current bund yields of around 0.70 per cent, an investor would make a zero annual return if yields inch up by just another 0.07 per cent. A rise in yields of 0.25 per cent would be enough to erase dollar returns of ten-year Treasuries yielding 2.23 per cent today. Read more
Argentina’s debt default at the end of last month might have been expected to plunge emerging markets into a new paroxysm of panic. But the saga has for the most part been brushed off by fixed income fund managers.
True, prices of Argentine bonds have fallen, but not by very much. An issue due in 2033 actually gained slightly last week to close on Friday at 84 cents on the dollar, down from 96 cents two weeks ago but well above its 2014 low of 65 cents, let alone the 20-30 cents in the dollar level to where defaulted Latin American paper might have been expected to sink.
What’s more, demand for new high yield Latin American paper continues to surge. Read more
Readers of beyondbrics know that emerging markets bonds are hot properties at the moment. Investors are flocking to them for their attractive yields and EM companies and governments, emboldened by the demand, have been happy to oblige, issuing a record $360bn in hard-currency bonds so far this year.
But every bond issued adds to the money that must be repaid somewhere down the line. For David Spegel, head of emerging markets strategy at ING, 2014 could be a crunch year for EM bond refinancing – particularly of speculative-grade bonds. Read more
It took a while – over ninety years since the last one and almost nine months since it was first announced. But Bolivia finally took the plunge into the global credit market on Monday, with the launch of a $500m bond issue. Read more