Three years ago, almost 30% of all global government debt was trading at a negative yield. “It seemed like the era of super-low interest rates would never end,” says the sliding banking giant: “but it did.”
Nowadaysdebt with negative yield has practically disappeared. More than half of the developed world’s sovereign debt is negotiated yielding over 4%, and US Treasury bond yields, from 3-month to 30-year bonds, range between ~4.5% and 5.5%.
The rise in global bond yields is not only historic, but marks the most significant development in the markets since the world emerged from the COVID-19 pandemic. It has also reconfigured the investment landscape. Rates near 5% give investors more options to build wealth plans aligned with their goals than at any time since the global financial crisis (GFC).
Many investors have already paid a price for this new flexibility. Global multi-asset portfolios have made only modest gains since stocks took off in November 2020 on news of Pfizer’s successful COVID vaccine trial. For the first time, Investment grade debt (which includes sovereign securities, municipal bonds and corporate credit) is at risk of delivering negative total returns for three consecutive years. Despite a strong calendar year in 2023, broader stock markets have also struggled to find direction amid sharp swings in certain stocks and sectors.
Treasury Bonds: JP Morgan’s suggestion
While multi-asset portfolios have remained stable, cash hasn’t looked this attractive in more than 15 years. Not surprisingly, perhaps, “our clients have added at least $120 billion to money market funds, Treasuries and other short-term fixed income investments to generate incremental returns with limited downside risk,” the bank maintains.
“This has not depleted their deposits, but rather they have added at least $18 billion more in checking, savings and CD accounts. In short, our clients are holding significantly more cash than they did two years ago,” he adds.
Cash is understandably tempting. And at the same timehigher bond yields and reasonable equity valuations mean that future performance projections across many asset classes look more promising than before the GFC.
In short, it is clear that markets have entered a completely new interest rate regime. We suggest investors consider capitalizing sooner rather than later on what we believe is a once-in-a-generation opportunity that may not be available within a year, JP Morgan concludes.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
