Global bonds near their best month since 2008 financial crisis
In November, sovereign and corporate debt worldwide shot up by 4.9%, per a Bloomberg analysis. That is the biggest monthly gain since December 2008. Why the sudden spike? Well, investors are thinking that the US Federal Reserve and other big banks might stop raising interest rates soon and might even start cutting them next year. Fed Governor Christopher Waller's recent statement, indicating that the current policy stance is well-suited to temper the economy and curb inflation, has strengthened this belief.
Corporate bonds benefit from dovish central bank outlook
The shift in what people expect from central banks has been beneficial for corporate bonds. The investment-grade global company debts are almost as cheap as they were back in April 2022. Interest rates on these bonds have dropped too, from hitting nearly 6% in October, the highest since 2009, to around 5.3% this week. So, investors are rushing in to buy these bonds, thinking they are a good deal amid growing hopes for a soft landing of the US economy.
Tension between credit investors and rates traders
Credit investors and rates traders aren't totally on the same page yet. Right now, swap contracts are betting on the Fed cutting rates by a full percentage point by the end of 2024. But back in September, US policymakers were anticipating one more rate hike this year and a smaller half-percentage point cut in 2024. We will get fresh updates on what they are thinking at the meeting happening on December 12-13.