Investors have piled into fixed income this year, lured by the promise that bonds were back after a year of miserable returns. So far, that trade has failed to deliver bumper returns.
Global bond markets have lost 1 per cent this quarter, as stubbornly high inflation on both sides of the Atlantic pushes big central banks to keep raising interest rates. Following a 3 per cent gain in the first quarter, that setback means the asset class so far has not delivered on its promise of a strong rebound after last year’s historic 16 per cent loss for the Bloomberg Global Aggregate index — a broad gauge of global fixed income and the benchmark for many bond funds.
Investors betting that inflation is on its way down as recession looms are “up to their eyeballs” in bonds, said Jim Bianco, president of Bianco Research. “It has been a painful bet. Over the last five or six weeks, there have been a number of them seeing their performance getting hurt,” he added.