The third quarter did not herald good news for government bonds. A Reuters report detailed how concerns about extended periods of raised interest rates caused these assets to plunge in Q3, with the biggest sell-offs seen so far this year.
Global government bonds experience largest 2023 sell-off
Some investors believe this is just the tip of the iceberg and predict government bonds will weaken even further. They may have a point, as both US and German government bond yields were pegged for significant quarterly increases but failed to live up to expectations.
Poor performances dashed the hopes of fund managers who thought this quarter would deliver a reprieve from the stand-out losses that crippled this asset in 2022. Everything seemed to be on track for a positive Q3 financial yield until the US Federal Reserve and central banks upped interest rates once again to stem the tide of inflation.
The aggressive approaches of central banks stymied the gains in bond yields earlier this year. Reuters used US benchmark 10-year treasury bonds as an example, which range around a 16-year high of about 4.55%. Treasuries are set to report a third consecutive annual loss.
This causes a ripple effect, influencing the performance of equities. On the back of this, global currencies are trying to compete with a rallying dollar. Greg Peters, the co-chief investment officer at PGIM Fixed Income, told Reuters:
The bias is finally being absorbed by the marketplace that rates will remain higher for longer.
Last week, the US Federal Reserve flabbergasted investors with its hawkish approach. Experts view this as an indication that borrowing rates for 2024 will hover around current levels.
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Investors are also not expecting rate cuts from the European Central Bank. It seems that policymakers are sustaining the present trend.
