In a recent report, Barclays Plc has warned that global bonds are poised for continued decline unless a significant downturn in equities sparks renewed interest in fixed-income assets. Analysts at the bank, led by Ajay Rajadhyaksha, assert that there is no magic yield level that can automatically attract enough buyers to initiate a sustained bond rally.
“While there is no specific yield threshold to trigger a bond rally,” the analysts stated, “one scenario that could lead to a material bond rally in the short term is if risk assets experience a sharp decline in the coming weeks.”
The global bond market has been roiled in recent months, primarily due to expectations of prolonged higher borrowing costs, particularly in the Treasury bond market. Although the sell-off momentarily eased, market participants remain vigilant for potential volatility resurgence, especially if U.S. non-farm payroll data, set to be released on Friday, surpasses expectations.
Barclays analysts believe that the U.S. central bank is unlikely to scale back its quantitative tightening program, effectively making it a net seller of Treasuries. Additionally, the increasing bond supply, driven by a rising deficit, is pushing up the term premium, further weighing on bond market sentiment.
The report also points out that demand for bonds is likely to remain weak as foreign central banks reduce their net purchases. Japanese investors, who are the largest overseas holders of Treasuries, are expected to turn their preference toward domestic debt as yields are anticipated to rise when the Bank of Japan adjusts its accommodative policy stance.
In light of these factors, Barclays contends that the fate of the bond market is intimately tied to the performance of equities. The recent approximately 5% drop in the S&P 500 Index over the past three months falls short of what is required to initiate a rebound in fixed income.
“The magnitude of the bond selloff has been so remarkable that, from a valuation perspective, stocks are arguably more expensive than they were a month ago,” the analysts remarked. “We believe that the eventual path to the stabilization of bonds lies in a further downward repricing of risk assets.”
As investors brace for potential market turbulence, the relationship between bonds and equities remains a key focal point, with the future of global bonds hinging on the trajectory of stock markets worldwide.
Photo Source: Google
October 4, 2023
Delino Gayweh
Serrari Financial Analyst
Article and News Disclaimer
The information provided on www.serrarigroup.com is for general informational purposes only. While we strive to keep the information up to date and accurate, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
www.serrarigroup.com is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information on the website is provided on an "as-is" basis, with no guarantee of completeness, accuracy, timeliness, or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
In no event will www.serrarigroup.com be liable to you or anyone else for any decision made or action taken in reliance on the information provided on the website or for any consequential, special, or similar damages, even if advised of the possibility of such damages.
The articles, news, and information presented on www.serrarigroup.com reflect the opinions of the respective authors and contributors and do not necessarily represent the views of the website or its management. Any views or opinions expressed are solely those of the individual authors and do not represent the website's views or opinions as a whole.
The content on www.serrarigroup.com may include links to external websites, which are provided for convenience and informational purposes only. We have no control over the nature, content, and availability of those sites. The inclusion of any links does not necessarily imply a recommendation or endorsement of the views expressed within them.
Every effort is made to keep the website up and running smoothly. However, www.serrarigroup.com takes no responsibility for, and will not be liable for, the website being temporarily unavailable due to technical issues beyond our control.
Please note that laws, regulations, and information can change rapidly, and we advise you to conduct further research and seek professional advice when necessary.
By using www.serrarigroup.com, you agree to this disclaimer and its terms. If you do not agree with this disclaimer, please do not use the website.
www.serrarigroup.com, reserves the right to update, modify, or remove any part of this disclaimer without prior notice. It is your responsibility to review this disclaimer periodically for changes.
Serrari Group 2023