The bond market rally that began in November 2023 has continued to drive yields past Wall Street's end-2024 targets. The rally, which sparked the best month for bonds since the 1980s, has led to a pan-markets rally in stocks, credit, emerging markets, and even cryptocurrencies. The rally has been fueled by signs of a slowing economy and inflation, as well as indications that the Federal Reserve is done hiking interest rates. Cooling jobs data and dovish comments from Fed Chair Jerome Powell have contributed to the bond rally. The MSCI World Index and emerging-market shares have also experienced significant gains. US junk bonds have rallied, and investors have poured a record $11.9 billion into exchange-traded funds tracking the asset class. Expectations for US interest rate cuts have been brought forward, with traders now pricing in about 1.15 percentage points of policy easing for 2024. The first cut is expected at the central bank's May meeting. The rally has prompted a shift in positioning among bond managers, with some loading up on longer-dated debt. Western Asset Management's core plus bond fund has gained 6% in the past month, pushing the fund back into positive territory for the year. The rally could prompt a flood of short covering, and long-time bears are already exiting their positions. Active bond managers have been loading up on longer-dated debt, and Western Asset Management's core plus bond fund has gained 6% in the past month. In November, risky assets like stocks and high-yield bonds performed exceptionally well, defying traditional correlations. This was driven by a combination of factors including positive economic data, declining yields, falling oil prices, and increased deployment of cash. The Nasdaq surged 10.7%, and even risk-off assets like gold and Treasury bonds saw gains. Analysts express confidence for 2024, but challenges remain, such as navigating inflation, sustaining productivity growth, and addressing high valuations. The rally demands ongoing efforts to preserve this unique alignment of risk factors. The recent rally in bonds, including Treasuries, agency and mortgage debt, has sparked a pan-markets rally in stocks, credit, emerging markets, and even cryptocurrencies. The rally comes as signs of a slowdown in the economy and inflation, along with dovish comments from the Federal Reserve, have boosted investor confidence. The MSCI World index has soared 8.9% in November, while emerging-market shares have gained 7.4%. U.S. junk bonds have rallied over 4%, and the Bloomberg Galaxy Crypto index has advanced 18%. The rally in bonds is driven by expectations of interest rate cuts and a soft landing for the U.S. and global economy. Traders are now pricing in about 1.15 percentage points of policy easing for 2024. The rally in European government bonds has also extended as inflation readings across the region came in lower than expected. The recent move in the bond market has prompted short covering and positioning changes among investors. Active bond managers have loaded up on longer-dated debt, and net longs have jumped to a record 78% among active investors. The rally has been a relief for bond investors who were bracing for a possible third straight year of losses. However, the future of the rally depends on whether the forces behind it, such as a slowdown in the economy and inflation, continue to build.
Barclays Plc recommends selling 10-year US Treasuries due to the recent bond rally, which they believe is excessive. Yields on the global funding benchmark have fallen nearly 30 basis points from this year’s peak of 4.35% as traders bet the Federal Reserve will cut interest rates sooner rather than later. However, Barclays argues that the drop in yields is odd given that US economic data have proved stronger than expected in recent weeks. They believe the rally seems excessive and caution against it. They also mention an increase in supply in the coming months and the Fed's aim to reduce its overall debt maturity as reasons for caution. Barclays believes that the economic fundamentals remain strong and that the case for a meaningful easing cycle has weakened. [7b767d44]
Barclays Plc recommends selling 10-year Treasury notes due to the recent rally in U.S. bonds, which they believe is overdone. Yields on the global financing benchmark have fallen nearly 30 basis points from this year's peak of 4.35%, despite stronger than expected U.S. economic data. Barclays strategists argue that the rally appears excessive and cite the resilience of the U.S. economy as a reason to short 10-year US Treasuries. The timing and speed of the Federal Reserve's expected shift toward policy easing have been uncertain, but Barclays' bearish bond call comes ahead of crucial inflation data. The 10-year yield was steady at 4.07% in Asian trading on Monday. Barclays also highlights an increase in supply in the coming months and the Fed's goal of shortening overall debt maturity as reasons for caution. [97557878]
U.S. Treasury yields have fallen too much over the past few weeks, according to rates strategists at Barclays Research. They recommend selling 10-year Treasurys, stating that the rally seems excessive. The Federal Reserve's case for a meaningful easing cycle has weakened, raising the risk of a shallower easing cycle. Additionally, the net supply of U.S. Treasurys is expected to increase in the coming months. The 10-year U.S. Treasury yield is currently trading at 4.068%, down 2 basis points.
Barclays recommends selling the 10-year US bond after an 'excessive' bond rally. The recent rally in the bond market has probably gone too far, according to Barclays strategists. Investors have been bullish on bonds, snapping up US bonds in the past few weeks. Yields on the 10-year note have dropped 30 basis points. The analysts believe that the strong economic data supporting rates remaining higher for longer makes it odd that investors have been bullish on bonds. The case for a meaningful easing cycle has weakened, raising the risk of the Fed forecasting a shallower easing cycle. Barclays is betting on a resilient US economy and expects yields on the 10-year note to rise from here. The increase in supply of US Treasurys and the Fed's attempt to shed its portfolio of long-term government bonds are contributing factors. Investors have been seesawing between ramping up and dialing back wagers on rate cuts this year. The recent jobs report contained mixed data for investors trying to map the path of Fed policy. [e5f49dd6]
Barclays is bearish on US government bonds and forecasts lower bond prices and higher yields for US Treasuries. They believe that the recent rally in bond prices is overextended and recommend shorting 10-year US Treasuries. Barclays finds it odd that there is bullishness on the US 10-year bond given the strong economic data suggesting rates will remain higher for longer. They also mention that the few softer data points are misleading and that the risks are skewed toward the economy surprising to the upside. Additionally, the increase in the supply of US Treasuries and the Federal Reserve trying to offload its government bond portfolio suggest higher yields to come. [514b7f15]
Junk bonds are outperforming less risky debt in 2024, but a strategist from Vontobel Holding AG is avoiding the asset class. The rally in high-yield notes is driven by bets that the US economy will avoid a recession despite the Federal Reserve's high borrowing costs. Bloomberg's global speculative grade credit index has returned 1.3% this year. However, the Vontobel strategist believes that the good performance is not sustainable and prefers Treasuries over high-yield debt. [4d09d781]
Bill Gross, known as the 'Bond King', warns of 'excessive exuberance' in AI-driven stocks and states that he is not buying bonds either. Gross attributes the market records and stock market highs to the ongoing AI frenzy and high federal spending. He notes that the stock market has been unaffected by the rise in Treasury yields, indicating that fiscal deficit spending and AI enthusiasm have been overriding factors. Gross predicts that investors can expect 'excessive exuberance' in the future. While bond yields typically decline ahead of stock euphoria, Gross is not interested in buying bonds due to an oversupply of 10-year notes. He believes that if the economy avoids a recession, the yield curve will flatten, causing 10-year rates to rise. Gross's strategy involves going long on two-year notes and shorting 5- and 10-year Treasurys. He has also focused on pipeline master limited partnerships and regional banks over the past 12 months. Gross warns investors to be cautious about joining the MLP sector but recommends Western Midstream Partners. [9da8d60a]
Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania, spoke about the equity markets, treasury bonds, and artificial intelligence. He believes that the price-to-earnings ratio of the market is not at its peak or bottom and should ideally be around 20x. He argues that the historical P/E ratio is 16x but expects an upward migration due to reduced transaction costs of diversification. Siegel does not see the market as a bubble. He highlights that treasury bonds are great hedges for certain risks like geopolitical, recessions, pandemics, and financial crises, but they are terrible hedges for inflation. He also mentions that AI will raise real growth and interest rates. AI is considered a technology that could revolutionize productivity. Investors are ignoring several simultaneous extremes in the market, including overpriced assets, record investor inflows, and historic levels of investor sentiment. Reliable signals, such as low put valuations, an inverted Treasury yield curve, and insider selling, are flashing red. Top corporate executives are selling at an intense pace, indicating overvaluation. The next bear market is likely to surprise investors who believe it is far away. The current AI and large-cap bubble parallels the internet bubble of 1999-2003. The market is overvalued in various sectors, including cryptocurrencies, gold, and residential real estate. QQQ and related assets are expected to lose one-third or more of their recent peak valuations, with QQQ potentially dropping below 300 in the next twelve months. The market is in the sixth U.S. market bubble in history and is likely to collapse, resulting in significant percentage losses for most U.S. stocks. QQQ is expected to fall below 100 by 2027 or sooner. Popular Inc. stock gained 0.630% compared to the previous day.
Natixis Investment Managers recently held a Thought Leadership Summit in Paris to discuss the global macroeconomic outlook and investment opportunities in 2024. There is no consensus on whether bonds will gain ground this year. Philippe Berthelot, CIO credit and money markets at Ostrum Asset, believes 2024 will be another good year for fixed income, particularly European investment-grade credit. However, Mabrouk Chetouane, head of global market strategy at Natixis IM, disagrees and says it is too soon to say whether 2024 will be the year of the bond. He believes the US economy is still strong and expects growth of 2%, suggesting there could still be interest rate cuts in June or July. Chetouane prefers adding equities to portfolios and likes US and Japanese equities. Other wealth managers also favor Japanese equities in 2024. ESG-focused investments have been growing in Europe but have faded slightly in the US. ESG-focused funds have underperformed in the last two years, but some believe they will do well in the longer term with standardized good quality data to support them.
The positive correlation between treasuries and fixed income investments broke down in 2022, leading to a rethinking of portfolio construction. Ann-Marie Griffith, managing director