Door Chris Iggo, Chief Investment Officer
- Persistently strong economic data and above-target inflation has left the Fed with little choice regarding its stance on policy
- Government bond yields have risen to multi-year highs, but this heralds a return of value and credit markets looking attractive
- Overall bond portfolio returns will likely rely much more on coupon income than on outsized capital gains
This summer's bond bear market has been painful. Government bond yields have risen to multi-year highs primarily because of concerns that interest rates will remain high for a significant length of time.
The good news is that this has brought value back into the bond market; it has improved the probability of long-duration strategies being able to outperform cash going forward - which has not been the case so far in 2023. Such an outcome requires long-term yields to move down again. But that depends on the current narrative of a soft landing for the US economy to be challenged.