Global bonds are in a bear market

Photo of Judita Grigelytė (VŽ).

The global bond market has entered its first bear market in at least three decades. It was dragged there by rapid interest rate hikes by many central banks in an effort to control rising inflation.

The Bloomberg Global Aggregate Total Return index, which tracks government and investment-grade corporate bonds, has fallen more than 20% since its peak in 2021. January 1 The index then reached 558.73, before reaching 445.48 on Friday.

This is the biggest decline in the index since the index was created in 1990, Bloomberg reports.

Rapidly increasing benchmark interest rates have ended a four-decade bond bull market, according to Stephen Miller, investment adviser at GSFM, a division of Canadian asset manager CI Financial Corp.

“I suspect that the secular bull market in bonds that began in the mid-1980s is coming to an end,” he says. “Yields will not return to the historic lows we saw before and during the pandemic.”

Rising inflation means central banks will not scale back stimulus measures such as massive asset-buying programs that have helped push yields below 1%.

Yields move against the price of bonds.

The fact that bonds and stocks are falling at the same time means a difficult situation for investors who rely on the old 60/40 portfolio strategy, which divides the portfolio equally between stocks and bonds.

The portfolio is down 15% year-to-date and is on track for its worst annual performance since 2008.

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