Investors battered by the unprecedented bond losses could soon receive some much-needed reprieve, if history is any guide.
Over the past two decades, global government bonds posted a median total return of 1.1% in April, more than any other months, Morgan Stanley’s strategists led by Matthew Hornbach wrote in a note Friday. The average return of 0.7% in April, the start of the Japanese fiscal year, was also among the best months.
The favorable seasonal pattern may come just in time after an unparalleled bond rout wiped 13% off a Bloomberg global index of government debt since its peak in January 2021 as the central banks unwound their pandemic-era stimulus. Surging yields have shrunk the pile of government bonds with negative yields globally to just $2.9 trillion, or 7% of total outstanding, down from 50% in August 2019, according to Morgan Stanley.
“Hope seems lost for global government bonds,” Morgan Stanley’s strategists wrote. “But as the saying goes, ‘It’s always darkest before the dawn.’ The calendar suggests some clearing of clouds ahead.”
Morgan Stanley is advising clients to wager on a flatter U.S. yield curve. The strategists also warned that even after the recent surging yields, U.S. Treasuries still don’t “look attractive” for foreign investors after hedging out currency risk.
Yields on two-year Treasuries surged as much as 14 basis points to 2.41% Monday, as traders priced in two full percentage points of Federal Reserve increases over the remainder of this year. The shorter-term bonds also underperformed ahead of auctions of two- and five-year notes later today, totaling $101 billion.
Yields on five-year notes rose above those on 30-year bonds, marking the first inversion in 16 years. It suggests that investors anticipate that the monetary policy tightening may lead to growth slowdown and cool inflation.
This article was provided by Bloomberg News.