General
- Yields available in many segments of the bond market have been climbing, but they are still somewhat lower than investors have historically experienced.
- High-quality bonds have tended to provide support to investment portfolios during periods of equity market volatility; however, the first half of the year has been quite the exception with both stocks and bonds declining in sync.
Domestic
- Yields moved higher across the yield curve in the first half of 2022, but the curve started flattening as short-term rates climbed at a higher pace than intermediate- and long-term rates.
- The Federal Reserve is committed to its aggressive tightening policies. We expect additional rate hikes through year-end and for the Fed to continue shrinking its balance sheet.
- Credit spreads widened during the first and second quarter on concerns over growth and further tightening from the Fed to combat inflation. We believe investors should selectively add yield.
International
- Higher inflation is pushing developed market government bond yields higher — the longer end of most curves are now comfortably in positive territory.
- The European Central Bank is on track to raise policy interest rates back above zero in the second half of the year, and this will likely keep upward pressure on eurozone bond yields.
- As U.S. Treasury yields rose to the 3% level, and as spreads widened with the deterioration in the global economic environment after the onset of the war in Ukraine, Emerging Market Index (J.P. Morgan EMBI Global Index) yields took another leg higher, rising above 7%. The sector may remain under pressure while conflict persists; however, higher yields should attract inflows once stability returns.