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The US Bond Market: Why It’s Worth Watching

US bonds today might be of interest even to those who traditionally invest solely in risky assets such as stocks. 

High return

Net yields on 10-year US Treasury bonds reached 1.7% per annum. For comparison, in 2021 it was negative. This yield is the best among the debt of developed countries, i.е. extremely low-risk assets. The yield on so-called corporate “junk” bonds (with medium and low ratings) is even more attractive: 8.8% compared to 4.4% at the beginning of the year.

Strengthening dollar

The growth of the dollar against other currencies will further stimulate the demand for assets denominated in it.

How are bonds doing now?

So far, not very good. The market is pushing further for selling as inflation remains high and the interest rate rises: debt securities are the most sensitive to these variables. On the other hand, bond prices have fallen to very attractive levels. It is likely that these levels are close to the bottom.

What’s next for the market

Important indicators for bonds will be inflation data and Fed meetings on November 2 and December 14.

If inflation slows down and the Fed doesn’t make any negative rate surprises, we will see the bond market increase. Moreover, bonds with a long maturity will look more interesting.

If the Fed’s rhetoric is tough, bond prices could drop even further, creating an even more attractive moment to enter in the future.

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