Over the month of January, the Bloomberg Barclays Global Aggregate, US Investment Grades, US High Yields, and Emerging Markets US Dollar Bonds down 2.05%, 3.37%, 2.73%, and 2.63% respectively.

Inflation in both Europe and the US continue to set record highs in recent years. Henceforth, in order to reign in the runaway inflation, Fed president Jerome Powell mentioned that tapering could start within the year, which would put more pressure on asset prices due to the reducing liquidity. As for the ECB, they have seemingly shifted their stance on the inflation outlook and monetary policy. Concerned about the high inflation, the ECB announced a reduction of asset purchases over the year. The turnaround was unexpected and puts pressure onto the bond market.

The elevated inflation was one of the main reasons for the tightening policy, which was caused by a myriad of factors. The ongoing energy crisis, supply and demand imbalance in general, and the lingering supply chain problems further adds fuel to the fire. With continued tightening expected, fixed income as an asset class this year is expected to underperform. If one still has to invest in fixed income, we will continue to propose prioritising high yields for their shorter duration and higher carry. We see Asian bonds in particular as a unique investment opportunity, as the loosening monetary in the region could lift the market in 2022.