How stable are bond yields around the world? Via Investing.com

Investing.com – There has been widespread debate about the sustainability of the recent rise in global bond yields, as well as the potential impact on financial markets and the economy.

While short-term energy may support higher yields, cyclical energy and structural data indicate yields will be stable, according to analysts at BCA Research.

The increase in bond yields, especially since the first rate cut by the US Federal Reserve at the end of 2024, shows mixed data.

Changes in monetary policy expectations have been a major driver, and the market is currently assessing the direction of future rate hikes.

This shift has already progressed around the world, and is having a significant impact on both developed and emerging markets.

However, at the end of the long term yield yields are increasingly declining from immediate policy expectations, highlighting the increasing importance of the term premia driven by inflation volatility. and the government’s financial problems.

BCA Research notes that much of the recent increase in yields can be attributed to changes in risk premia.

Countries with current account deficits, such as the United States and the United States The government (TADAWUL :), had a more pronounced increase compared to other economies such as Germany and Japan.

This process suggests that investors are bracing for greater liquidity and the need for foreign exchange, which could exacerbate the volatility of bond markets.

Despite the headwinds, BCA Research maintains a cautious outlook for government bonds in the medium term.

The business sector shows the isolation of high output, which tends to reduce growth and inflationary pressures.

High borrowing costs are already putting pressure on interest-sensitive sectors, such as housing and corporate finance, with signs of slowing activity in the mortgage markets and rising supply challenges. money for business lenders.

These developments are consistent with broad expectations of slower economic growth, which may put downward pressure on incomes over time.

Instead, BCA highlights the value of certain government bonds, especially those from economies with high risk and low growth prospects.

For example, the UK stands out as an attractive market despite the latest products. Analysts argue that the selloff in UK gilts is very different from the 2022 junior bond crisis and reflects global strength rather than domestic financial instability.

The high risk premium on UK bonds, together with the vulnerability of its economy, provide a strong level of risk reward.

In the United States, the uncertainty of rising inflation remains a major concern. The Federal Reserve has expressed heightened concern about long-term price stability, which is contributing to the rise in term premia.

However, the BCA argues that these concerns are unlikely to continue indefinitely, especially with moderate economic growth and inflationary pressures.

This position reinforces the idea of ​​maintaining a high-quality portfolio, favoring high-quality government bonds over corporate debt.

The rise in global bond yields also affects the broader economy. Rising yields and the strengthening of the US dollar are causing problems for emerging markets whose debt is denominated in dollars.

In addition, tighter financial conditions could affect global trade and investment flows, increasing risks to growth.

BCA Research advises on the level of security in fixed income portfolios, prioritizing time management and selective exposure to government bonds.

Despite the possibility of more volatility in the near term, the business community emphasizes the long-term value of bonds, especially when the economic cycle changes to weak growth and inflation.