Central Bank Uncertainty Driving Bond Market Volatility

Central Bank Uncertainty Driving Bond Market Volatility

Felipe Mejia

Felipe Mejia

Analyst

Most people tend to believe that if you want to take on low risk investments, you invest in bonds. Although this is true for the most part, lately the fixed income markets have been more volatile than even some equity markets. A few reasons for these moves in the bond market stem from the Federal Reserve’s tapering announcement this month, the Bank of England holding rates steady when it was expected to hike and other smaller central banks around the world starting to restrict liquidity. The rate cuts from the pandemic to the zero lower bound have resulted in more upside risk to rates as economies recover. This has led to an underperformance of the U.S. Aggregate Bond index of -1.48% YTD as of 11/26/2021. The underperformance combined with central bank tactics to tackle the pandemic and inflation have led to the turbulence that all investors, not just fixed income investors, should keep a close eye on.

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Based on IM0000000

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