Posted inAnalysisFixed Income

ANALYSIS: Is the bond sell-off a blip or just the beginning?

With the Janet Yellen-led Fed having set out its stall to act according to global factors rather than purely domestic, it is very conceivable that the FOMC could be unsettled by something between now and December and back off from a rate rise.

According to chief investment officer at Invesco Perpetual Nick Mustoe, the situation is finely balanced.

“In the bond markets, the bubble is still intact,” Mustoe said. “However, in recent weeks there has been a significant shift upwards in yields all along the curve. Ten-year gilt yields are now back to pre-Brexit referendum levels, having more than doubled from the lows of 0.5% seen in mid-August. Ten-year US Treasuries are now yielding 1.8%, which admittedly is not a particularly high number, but is still a significant shift up from the lows seen in early July.”

“Will this sell-off in bond markets be sustained?” Mustoe continued. “It is clearly difficult to know for sure; but as these moves have shown, the bond markets are incredibly sensitive given the extremes that they are trading at. To my mind, it won’t take much to have an effect of significant magnitude. Should actions follow rhetoric, there could be a meaningful, sustained sell-off in these markets.” 

Part of the Mark Allen Group.