With the energy crisis still unfolding, global monetary policy tightening is all but inevitable. A majority of fixed income indices fell as bond yields rose across the board. Bloomberg Barclays Global Aggregate, US High Yields, and Emerging Markets US Dollar Bonds lost 0.24%, 0.17%, and 0.42% respectively, while US Investment Grades managed to edge a 0.25% gain.
Into the last quarter of the year, the ongoing energy crisis is shaping up to be a significant issue for the global economy. While earlier supply chain issues remain unresolved, global fuel shortage further exacerbated the price pressures in the market, sending inflation higher. The US figure in particular stayed steady above 5% YoY, while the Eurozone figure hit a new high since 2008, all of which suggesting that the current dovish monetary policy are not here to stay.
Among major economies, the ECB is the minority in deciding to keep monetary policies on the dovish side. Global central banks from the rest of the world have started monetary tightening, encompassing banks from both DM and EM economies. The most influential central bank US Fed has also announced the start of tapering, scaling back quantitative easing and bond sending bond yields higher. The fixed income market outlook remains uncertain, as downside risks stay with the rising interest rate risks. We continue to see high yield bonds as the better option over investment grades as they have a shorter duration on average and the higher carry should offer better risk adjusted return.