It’s been a tough year for bond prices, but there’s a growing chorus of investors who believe the market is on the cusp of another historic bull run.
In fact, a new report from S&P Global Ratings says that investors are already bullish on the bond market.
And if things continue as they are right now, the S&s expects bond prices to hit their highest level in almost a decade this fall.
“We’ve had a really strong bull market,” said Mark Williams, the chief economist for S&ing Group, which oversees about $8 trillion in assets.
“There’s a lot of money floating around.”
As well, the economy is picking up steam.
And that’s creating a lot more demand for bonds.
“The economy is going through a period where people are looking for safe investments that have a track record of returns,” Williams said.
That’s led to a big increase in the number of people buying bonds, which is why S&’s research has focused on the most-valuable bond, the bond with the best return-on-investment ratio.
Williams said there’s also a growing consensus that bond yields are still too high.
For instance, he noted that the yield on 10-year bonds, currently 2.45%, is one of the highest rates in the world.
“There’s still a lot people who are holding this kind of debt,” he said.
Williams points out that many bond buyers, like homebuyers, are now using less of their savings to pay down their debt.
And they’re also getting better at managing their credit scores.
In an effort to cut back on their borrowing, many investors are also looking for cheaper debt instruments, like mortgage-backed securities, and they’re putting more of their money into smaller bonds, like cash bonds.
Williams says there are two big reasons for the rise in bond prices.
First, many of the new high-yield bonds are offering low rates of return.
The 10-month Treasury yield on those bonds is now 8.4%.
And the yield is just 1.8% on most smaller-bond instruments, according to Williams.
And as a result, many people are willing to pay a bit more for a bond that can earn interest.
Second, there’s been some improvement in the way that investors think about the quality of their bond portfolios.
This is partly due to improvements in the technology behind bonds, including advances in bond-based products like bonds that are backed by debt or other assets.
Williams pointed to the recent announcement that the Bank of England is launching an initiative to increase transparency about the bond quality of bond portfolios, and said he expects this will result in more interest in bonds from people who don’t have a good idea of how their money is being invested.
“It’s an exciting time for bond markets,” Williams added.
“The bond market is very dynamic, and we’re going to continue to see that growth.”
Watch for more stories about investing and bonds to come this week on CTV.