Bond Yield Trends for Financial Advisors

The first quarter's final Government Bond auction results reveal a continued downward trend in interest rates across all tenors. Most notably, the 2-year tenor has dipped below inflation, offering just 15.50% against the annual inflation rate of 16.8%. Interest Rate Changes: 2-year tenor: Now at 15.50% (below inflation) 3-year & 15-year tenors: Both dropped by 1% to 18.45% and 21.80% respectively 7-year & 10-year tenors: Decreased by 1.01% to 19.99% and 21.48% respectively 5-year tenor: Fell by 1.05% to 19.20% Despite rate decreases, market appetite surged significantly. Bids totaled K4,361.81Mn against an offer of K1,800.00Mn, up from K3,499.62Mn last month. The Bank of Zambia maintained discipline by allocating within budget, with the 10-year Bond securing the highest allocation at K518.39Mn. What These Changes Mean for Investors: Real Returns Remain Attractive - All tenors except the 2-year still outpace inflation, offering positive real returns for risk-averse investors with longer time horizons. Portfolio Diversification Is Key - Investors should consider redirecting Bond coupons toward additional income-generating investments. Reinvestment Opportunities - Consider Unit Trusts, Stock Market, Real Estate, or other business ventures based on your risk profile. Foreign currency investments may provide inflation protection. Fixed Income Security - Remember that your Bond rate remains locked in at purchase. For example, those who secured 15-year Bonds in January 2025 at 23.25% will maintain that rate until maturity, providing planning certainty. Portfolio Rebalancing - Now is an ideal time to review your investment allocations to ensure optimal resource distribution. As always, please consult a licensed financial advisor before making any major investment decisions. Happy Investing! #FixedIncomeInvesting #GovernmentBonds #PortfolioDiversification

🐻 Bear Steepener. Everyone is saying it. Here's what it actually means. The yield curve plots the interest rates on U.S. Treasury securities from 3 months to 30 years. A steepener means that short-term interest rates are low and long-term interest rates are high. The "bear" in bear steepener tells you why. ⸻ 🐂 A bull steepener means that short-term interest rates have dropped due to Fed policy decisions. Long-term interest rates have remained the same. 🐻 A bear steepener means that long-term interest rates have gone up. Short-term interest rates have not changed. Bear. Steepener. Long rates going up. Short rates stuck. Prices of long-term bonds getting hit. ⸻ Why now? The Fed has held rates steady at 3.50% to 3.75%. They can't cut rates yet. Inflation is at 2.7% and oil has passed $100 per barrel. For the past few months, long-term interest rates have been rising. The United States government deficit is growing. To finance the government debt, they issue bonds. Investors want a higher yield to own these bonds. Long-term rates rising due to government spending. Short-term rates pinned to the Fed. The yield curve steepening. Bearishly. The current U.S. yield curve: 3-month: 3.5% ── 2-year: 3.7% ── 5-year: 4.3% ── 10-year: 4.6% ── 30-year: 4.9% Flat on the short end and steep on the long end. That is the halfpipe. ⸻ 📐 What does this mean for your clients' portfolios? A 30-year Treasury has a duration of 18 to 20 years. A 25 basis point rise in interest rates means that bond loses 4 to 5 points in price. That's $4,000 to $5,000 on a $100,000 investment. A 5-year Treasury has a duration of 4.5 years. The same rise in interest rates will cost the investor about $1,000 on a $100,000 investment. Manageable. Explainable. Recoverable at maturity. Here is what most advisors are not saying out loud. A long-duration fund has no maturity date to recover to. An individual bond held to maturity returns par to the investor. That distinction matters more in a bear steepener than at almost any other point in the rate cycle. ⸻ 📌 What this means for your practice: In a bear steepener, you do not want to own any long-duration bonds or bond funds. ✅ The best position is in the belly of the curve, 5 to 7 years for both Treasuries and investment-grade corporates. 🚫 Cash might look good. Today, money markets are yielding 3.5%. If and when the Fed cuts rates, money market yields will drop to 2.75% to 3.0%. Locking in 4.3% on a 5-year today beats watching money market rates fall to 3.0%. 🔹 The most common question from clients right now: "Rates are high. Shouldn't I just buy the 30-year and lock it in?" The answer is no. They will be locking in a yield and taking on the risk of the longest duration at exactly the moment when that risk is highest. Position your clients in the part of the yield curve that will pay them and not punish them. ⸻ 👇 What questions are your clients asking you about interest rates right now? Share them below.

The global bond market is under pressure – here’s why: This feels like a crisis, but is it? Negative momentum has been strong in recent weeks. Long-term yields are rising across nearly every major market, led by Japan and the U.S. YTD, the U.S. 10yr+ segment (bonds maturing in more than 10 years) is down 1.6%, while the 1–10yr space is actually still up 2%, for a total return of a positive ~1.3%. Not alarming - yet. In Japan, the 10yr+ segment is down over 9% – a sharp and concerning move. Central banks usually steer the front end of the curve – the back end moves (mostly) with market forces: - U.S.: Deficits are rising, spending remains high, and foreign demand for Treasuries may be fading - a potent mix pushing yields higher. - Japan: Long yields are rising as the Bank of Japan appears more constrained than in the past. With yen weakness a key issue in trade discussions, aggressive bond market support has become a more delicate balancing act. - Europe: With fiscal rules loosening massively, markets are re-pricing significantly higher issuance and Europe's (Germany's) break from austerity. In market terms, this is a steepener, long yields rising faster than short ones. It signals that investors want more compensation to hold long bonds. And this is not just a U.S. story – it is global. Are there any circuit breaker? - Politics: Lacking direction, with little focus on what would actually support bond markets. Calling for lower yields or Fed cuts, without addressing fundamentals, is unlikely to help. - Economic data: Noisy and distorted by shifting tariffs and volatile policy. - Central banks: On hold. Geopolitical tensions and mixed signals make direction unclear. There is little standing in the way of this trend, unless something unexpected emerges. (Always possible) But here is the critical point: this view is now consensus. The narrative is widely understood. Positioning reflects it. Sentiment is aligned. Which raises a real question: What is actually priced in? 30-year U.S. Treasuries yield around 5.15%. Broadly attractive by recent historical standards – but not, if meaningful inflation persists or accelerates. Fortunately, the bond market can strip that out. That brings us to TIPS – Treasury Inflation-Protected Securities – which remove inflation risk from the equation. Implied inflation expectations are about 2.35%, putting real yields around 2.80%. Investors can earn 2.80% above inflation, for the next 30 years - in U.S. Treasuries. For long-term investors, that is a meaningful foundation to preserve and grow purchasing power. Momentum dominates in the short term. And the narrative is undoubtedly very powerful. But with consensus nearly uniform in its pessimism on long bonds – and valuations looking compelling to longer-term investors – a turn may not be that far off.  

India's bond market is at a crossroads. While the RBI has been cutting rates and inflation is low, a demand-supply mismatch for long-term bonds could push yields up. Here's a quick look at the current market dynamics and what a recommended strategy looks like. Key Takeaways 1. Benign Macro Environment: Inflation is low (1.55% in July 2025), giving the RBI room to aggressively cut policy rates. GDP growth has moderated to 6.5% in FY25, and liquidity is in surplus. The RBI has shifted to a "neutral" stance, suggesting limited further easing. 2. Yields & Spreads: 10-year G-Sec yields are stable around the 6.35%-6.36% range. However, the yield curve is steepening as shorter-tenor yields are 60-100 bps lower. State Development Loans (SDLs) and AAA corporate bonds offer attractive spreads over G-Secs, 70-75 bps higher, respectively. 3. Supply-Demand Mismatch: There's a growing issue in the bond market. A significant portion of government bond issuance is in long-term maturities (15+ years), but demand from key players like insurance and provident funds may not keep pace. This could lead to higher yields for long bonds. Recommended Strategy The market has likely finished its long-bond rally. Here's the updated strategy: - Reduce Ultra-Long Exposure: Cut back on G-Secs with maturities over 20 years due to their high volatility and limited upside. - Shift to Mid-Duration: Move into 5-10 year G-Secs for a better risk-reward profile and good roll-down potential. - Target Attractive Spreads: Add SDLs and AAA/AA+ corporate bonds to your portfolio to pick up an extra +70 min. basis points in yield. These offer an attractive return given the stable credit quality. #cfalevel1 #cfalevel2 #cfalevel3 #cfa #frm #cpa #caia #mba #ca #finance #market #financialmodelling

August 2024 - US Corporate Bond Recap US INVESTMENT GRADE CORPORATE BONDS: In August, US Investment Grade (IG) corporate bond spreads remained stable at 93 basis points (bp), unchanged from the end of July. However, this stability belies significant volatility earlier in the month when spreads widened to 110bp due to yen carry unwind trades disrupting the market. This spike brought spreads closer to their 5-year average of 119bp, albeit briefly. The 5-year low for US IG corporate spreads is 80bp. As of August 30, 2024, the yield on US IG bonds stood at 4.94%, with a duration of 7.1 years. US HIGH YIELD CORPORATE BONDS: US High Yield (HY) corporate bond spreads tightened to 305bp by the end of August, down from 314bp at the start of the month. Notably, spreads had widened to an impressive 381bp on August 5th, presenting a significant alpha opportunity for those with the conviction to invest in US HY corporate bonds at that time. The 5-year average spread for US HY corporates is 402bp, with a 5-year low of 262bp. The yield on US HY bonds was 7.30% as of August 30, 2024, with a duration of 2.9 years. OVERALL PERFORMANCE: August proved to be a favorable month for both US Investment Grade and High Yield Corporate Bonds, with returns of +1.57% and +1.63%, respectively. These returns were largely driven by movements in interest rates. During the month, the 2-year US Treasury yield fell significantly by 34bp, from 4.26% to 3.92%, while the 10-year US Treasury yield declined by 13bp, from 4.03% to 3.90%. This flattening of the yield curve brought the UST 2s10s curve close to positive territory for the first time since July 2022, indicating that inflation appears to be under control and recession fears are diminishing. Front-end rates are decreasing as the Federal Reserve is expected to cut rates. The CME Fed Watch Tool, which uses futures pricing to gauge market expectations for interest rate changes, indicates a 30% chance of a 50bp rate cut and a 70% chance of a 25bp rate cut at the upcoming FOMC meeting on September 18th. YEAR-TO-DATE PERFORMANCE: Fixed income returns continue to lag behind the rallying equity markets. Year-to-date, US Investment Grade Corporate Bonds have returned +3.49%, and US High Yield Corporate Bonds have returned +6.29%. According to LSTA Morningstar, US Leveraged Loans have returned +5.84%. Cash, represented by 1-3 month US T-Bills, has returned +3.64% YTD. In contrast, equities have significantly outperformed fixed income and cash, with the S&P 500 up +18.4% and the NASDAQ up +18.0% YTD.

Use this simple approach to master the Bond Market. Nominal bond yields can be thought of as the interaction between: 1️⃣ Growth expectations 2️⃣ Inflation expectations 3️⃣ Term premium 1. Growth expectations When it comes to economic growth we must consider two angles: structural and cyclical growth. Structural economic growth can be generated through more people joining the labor force (good demographics) and/or through a more productive use of labor and capital (strong productivity trends). The ability of an economy to generate structural growth is an important driver behind long-dated bond yields (strong structural growth = structurally higher long-dated yields and vice versa). Short-term economic cycles also matter for bond yields and particularly at the short-end. Cyclical growth trends are driven by the credit cycle, the fiscal stance, earnings growth, labor market trends and more - the healthier they are, the higher short-end bond yields can be pushed also as a result of a likely tightening from Central Banks that might grow worried about economic over-heating and inflationary pressures in such an environment. 2. Inflation expectations The second component driving nominal bond yields is inflation: but NOT TODAY'S inflation - instead we are referring to long-term inflation expectations. Central Banks might temporarily react to concentrated bursts of inflationary pressures by raising short-term interest rates but when it comes to long-dated bond yields investors will always pay close attention to inflation expectations. That's because consumers and borrowers will tend to make important decisions based on these rather than on volatile short-term trends in inflation. 3. Term premium An investor looking to get fixed income exposure can do that via buying 3-month T-Bills and rolling them each time they mature for the next 10 years. Alternatively, it can decide to purchase 10-year Treasuries today. What's the difference? Interest rate risk! Buying a 10-year bond today rather than rolling T-Bills for the next 10 years exposes investors to risks – term premium compensates for this risk. The lower the uncertainty about growth and inflation down the road, the lower the term premium and vice versa. 💡 The Main Takeaway 💡 If you want to make sense of bond yields, a useful approach to use is to think of them as the result of growth expectations, inflation expectations and term premium. P.S. If you liked this post you'll love my macro research. I share my macro analysis every day with the biggest institutional investors and hedge funds in the world. Get your FREE trial here👇🏼 https://lnkd.in/dyFFJp-z

Bond yields moved higher in the first two months of the year as the market repriced #Fed expectations. But what’s the outlook for interest rates and fixed income investments as we kick off March?   While we anticipate another healthy employment number this Friday, we still expect 75bps of cuts in 2024, starting midyear. Our near-term range on the 10-year US Treasury #yield is 4% to 4.5%, before moving toward 3.5% by year-end.   While a temporary move toward the top of that range is possible, we believe this would likely require a shock in the form of materially higher #growth or inflation, and we would be strong buyers around the 4.5% level.   In terms of positioning, CMBS continues to outperform, particularly the lower-rated BBB segment. We remain most preferred in the higher-quality CMBS sector. While spreads tightened over the past six weeks, CMBS remains cheap relative to their corporate credit counterpart.   With inflation expectations rising, TIPS have outperformed their Treasury counterparts, and we remain with a preferred allocation in 5-year TIPS given we still think inflation will remain above the Fed’s 2% target this year. Read more in the full report below from Leslie Falconio and John Murtagh.

Goldman Sachs Asset Management Fixed income musings Market Movements ➡️ Bond yields across advanced economies have risen despite central bank rate cuts ➡️10-year government bond yields have drifted higher since December Fed meeting ➡️Movement has been steady rather than sudden, reflecting economic fundamentals Key Drivers ➡️Upward revisions to US growth forecasts due to strong economic signals ➡️Higher inflation forecasts due to tariffs and economic strength ➡️Fed guidance for slower easing pace (two cuts vs four projected) ➡️Fiscal position concerns affecting long-term yields ➡️Technical factors like high bond supply early in year ➡️Country-specific issues (e.g., UK stagflation fears) Investment Implications ➡️Fixed income spread sectors remain resilient ➡️Focus on fundamentals as economy deviates from historical patterns ➡️Expect volatility from US policy changes under Trump administration ➡️Global opportunities exist outside US markets Need to stay agile and adjust exposures based on evolving dynamics Central Bank Outlook ➡️Fed: Expected rate 3.75-4% by end-2025 ➡️ECB: Moving toward 1.5% terminal rate ➡️BoE: Multiple cuts expected, targeting 3.5% ➡️BoJ: Further hikes likely, reaching 1% by end-2025

When bond prices fall, bond yields rise. It's one of the most fundamental relationships in finance. And right now, it's playing out in real time. The yield on the 30-year Treasury note is attempting to push back above the 5% level once again. As the chart below shows, the trend has been relentless: yields grinding higher while bond prices steadily erode. And the oil crisis is directly impacting the bond market. Energy costs feed into inflation expectations, which feed into longer-term rates. This could easily drive yields much higher, putting even more pressure on the financial system. Higher long-term yields mean:  → More expensive mortgages  → Higher corporate borrowing costs  → Greater stress on leveraged balance sheets  → Tighter financial conditions across the board The 30-year bond is the market's verdict on long-term fiscal and inflation risk. Right now, that verdict is not reassuring. Chart: Cbonds → https://lnkd.in/dzNB7vrb