Almost a replica of the January performance, bond indexes fell across the board apart from high yields. Concerns over inflation grew, funds shifted out of fixed income fearing that the Fed could be forced to raise rates if inflation does overheat. Bloomberg Barclays Global Aggregate, US Investment Grades, and Emerging Markets US Dollar Bonds lost 1.72%, 1.72%, and 1.42%, while US High Yields gained 0.37%.
Our positive view on the high yield bond market holds true up to date. Fundamentals, fiscal, and monetary factors all support high yields, and this should stay true for the years down the line as the global economy is now recovering. The yield curve in a recovering economy tends to be steepening, which negatively impacts investment grade bonds as they tend to have a longer tenor, while high yields usually thrives as they have shorter tenor on average and credit conditions improve in the economic recovery.
Moreover, markets expects major central banks to keep rates low in the short term. US Fed chair Jerome Powell reassured that the Fed does not see the need to raise rates for the coming few years, citing the accommodative monetary policies will stay in place as long as the economic situations have not fully recovered. This creates a healthy environment for the economy for recovery, together with the vast levels of stimulus and other governmental support, high yields and Asian fixed income in particular should continue to see better performance in the short to medium term.