The writer is chief market strategist for Europe, Middle East and Africa at JPMorgan Asset ManagementFor the first time in well over a decade I’m starting to get excited about bonds. This marks a significant turnround in my enthusiasm. For years, I’ve felt the bond market was horribly mispriced.
Never more so than at the start of this year. Inflation was surging, central banks were still blindly assuming it was transitory and governments had seemingly lost their fear of debt. And yet the 10-year government bond yield stood at 1 per cent in the UK, 1.5 per cent in the US, and a staggering minus 0.2 per cent in Germany.
The price of corporate bonds was similarly baffling. Investment-grade companies on the whole offered only a fraction of extra yield above the ridiculously low levels in the government bond markets. With yields of about 3 per cent in Europe, the term “high-yield bonds” was, frankly, laughable. Indeed, at one point almost a third of the bonds in the Barclays Global Aggregate Index had a negative yield and the term “fixed income” seemed an oxymoron.