Global Bonds, Best Rally Since 2008 Financial Crisis

Bloomberg Bond Index Rises 4.9% This Month

As expectations for a pivot (a shift in monetary policy direction) by the U.S. Federal Reserve (Fed) rise, global bond prices are experiencing their strongest rally since the 2008 global financial crisis.

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According to Bloomberg on the 28th (local time), global government and corporate bond prices have risen 4.9% so far this month. This is the highest monthly performance since the 6.2% increase in bond prices during the recession triggered by the 2008 global financial crisis, which accelerated the preference for safe assets.

Expectations that central banks around the world, including those in the U.S. and the Eurozone, have ended their rate hikes have spread, leading to rising bond prices (=falling bond yields). In the U.S., the slowdown in the Consumer Price Index (CPI) growth rate has fueled hopes for rate cuts. The October CPI rose 3.2% year-on-year, easing from 3.7% in the previous month. The core Personal Consumption Expenditures (PCE) for October, to be released on the 30th, is also expected to continue the slowdown with a 3.5% year-on-year increase and a 0.2% month-on-month rise.

Due to a surge in U.S. Treasury issuance caused by the government’s fiscal deficit and expectations of high interest rates, the yield on the 10-year U.S. Treasury bond briefly surpassed 5% at the end of October. However, as inflation slows and expectations grow that the Fed will begin cutting rates in the first half of next year, the yield has fallen to around 4.2%. This is the first time in two months that the 10-year U.S. Treasury yield has dropped to the 4.2% range. Christopher Waller, a Fed governor known for his hawkish stance (favoring monetary tightening), also stated on the same day that "if the inflation slowdown continues for several months, we could start cutting the policy rate."

The market expects the Fed to cut rates in the first half of next year due to the inflation slowdown, and anticipates that the upward trend in bond prices will continue. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on this day reflects more than a 65% probability that the Fed will cut rates by at least 0.25 percentage points in May next year.

James Wilson, Senior Portfolio Manager at Jamieson Coote Bonds in Australia, said, "Since Waller is a hawkish member, his dovish (favoring monetary easing) remarks are quite significant," adding, "It seems the Fed’s tightening cycle is almost over."

Bloomberg Intelligence (BI) strategists Ira F. Judge and Will Hoffman said, "Concerns about the U.S. federal government’s fiscal deficit will continue, but with monetary policy easing and expectations of falling inflation, demand for U.S. Treasuries will outweigh supply," and forecast that "U.S. Treasuries will record double-digit returns next year."