Fixed income arrives at Jackson Hole – the big annual gathering of central bankers – in a general context where bond prices are rising. From this Thursday to Saturday, Wyoming (United States of America) will host the relevant symposium, which will provide clear guidelines on which path of rate cuts the Federal Reserve will follow.
August is historic, for the better, for fixed income. All major debt categories collected by Bloomberg, totaling 19, were positive for the year for days (at the end of June, only 5 made it). At the beginning of August, the Bloomberg index Global Aggregate, the major reference in the fixed income market, replicating investment funds, which turned in losses for the first time in the year, and It is trading today at the April 2022 highs after a 2% rise in 2024. This indicator recorded 2.51% in August alone, after a 2.8% rise in July.
The fixed income market only anticipates the movements of central banksand everything shows that he was right. The ECB already cut rates last June and at this time cuts of a total of 100 basis points are expected in the US between now and the end of the year. Precisely at the last hour (European) of this Wednesday, the Minutes of the last Fed meeting were published, a meeting in which, as admitted by the president of the institution, Jerome Powell, a reduction in the price of money was already proposed.
“There is already good experience in the fixed income market rally from the end of Julywith the US 2-year bond falling more than 40 basis points. “We expected the US bond market to stabilize at these levels and we will seek further guidance from the Fed on whether the path of cuts will be slow and smooth or sharper and more drastic,” said John Kerschner, Head of Securitization Products and Asset Management. Portfolios in the United States by Janus Henderson.
The momentum that bands had has a lot to do with it too the panic that broke out in the market at the beginning of Augustwhen stock and oil markets collapsed due to fears of a US recession. Many investors chose to liquidate positions in equity and buy fixed income, in a clear move. “The good news for the Federal Reserve is that data released last week in the United States confirms that the US economy is not heading for an imminent recession,” he explains. James McCann, deputy chief economist in abrdn.
As for the Jackson Hole quote, McCann adds that “The Fed chair seems willing to signal that interest rate cuts are coming, but the pace and extent of easing remains uncertain […]. “Powell is likely to signal the start of a sustained easing cycle, which would set the stage for rate cuts at each of the upcoming meetings this year.”
“With interest rates held at their highest level in 20 years for more than a year, it is expected that Powell gives the green light to lower interest rates at the September 18 meeting. This will start a cycle of monetary easing, and we expect an interest rate cut of 25 basis points per meeting for the rest of the year. “He took his time, probably driven by the desire to avoid multiple changes of direction, due to the negative impact on economic and consumer confidence,” says Kevin Thozet, a member of the Carmignac investment committee.
What categories increase the most
If we look at the categories of debt that appreciate the most in price, it stands out above all he high yield Global: 6.94% increase in high yield bonds a year and are trading at an all-time high. It is this price increase that has translated into a fall in profitability (since, in fixed income, price and yield behave inversely): in fact, the profitability of the Bloomberg Global High Yield index (7.8%) is the rate lowest in two years. This indicator includes a global basket of what is known junk bondswhich have a higher default risk.
Price increases 6% a year emerging dollar debt, as indicated by the Bloomberg Emerging Markets Hard Currency Aggregate index. Only in August is 1.84% recorded. Immediately after, two other high-performance categories are placed: the high yield US corporate, with 5.64% in the year (and 1% so far this month) and the high yield pan-European (5.21% in 2024, and this month 0.61%). Just behind China’s debt (which despite not standing out in August, continues to rise 4.8% a year) now corporate bonds, which increased by 3.81% in 2024and only 1.9% so far this month.
The fixed income finally starting to taste the benign effects of the lower rates long awaited. Debt investors have sustained losses that they were totally unprepared for over the years. As a result of the sudden rise in rates initiated by the central banks in 2022 those profiles (precisely the most risk averse) saw the bonds in their portfolio depreciate significantly. Now, the change in the tone of monetary policy is starting to favor this asset.