What’s weighing on the minds of bond investors?

It’s a stormy time for global markets now. Even as they recover from the pandemic, many are still waiting for the dust to settle. Among the macro concerns plaguing the minds of fixed income investors now, consumer price inflation is at the top — it has hit a decade-high in North America and Europe, which is causing some central banks to raise interest rates.

Post-pandemic GDP growth is the second concern, with uneven global growth recovery keeping investors on edge. Meanwhile, some fear that a taper tantrum might occur again. This refers to when central banks suddenly reduce the rate of asset purchases, like 2013’s bond taper tantrum.

TLike climbers before a looming rock, many bond investors are putting in more cautionary measures. They are reassessing their bond exposures and seek to create a stronger portfolio. They want to diversify their bond holdings, reduce overall fixed income exposure, and broaden their fixed income portfolios to include new markets and bond classes.

Thankfully, Asia’s long-term growth fundamentals are still attractive – and bond investors are becoming more willing to invest in Asian bonds. Repeated lockdowns have muted inflation across the region and hence rate hikes are less likely. It is also worth noting that Asia is still expected to experience the highest growth globally in 2022 and 2023 despite the current slowdown. The region also offers relatively attractive yields and a stable base compared to similarly rated bonds in the developed markets. Given the current backdrop, Asia’s bond markets will continue to benefit.

Looking for more insights to guide your portfolio? Read our article, “Macro concerns weigh on bond investors”.