Chart of the Week
2022 saw increasing interest rates and spreads result in negative bond market performance across all segments and maturities.
Securities considered relatively safe performed worst. In 2022, European sovereign debt posted a performance of -18.22% and investment grade credit rated AAA to BBB came in at -13.94%. Meanwhile, European AT1 subordinated financial debt and high yield corporate credit rated BB+ to C closed out the year at -12.97% and -11.16% respectively.
OUR ANALYSIS
Soaring inflation and monetary policy tightening shook the markets in 2022, resulting in record negative performance across the board. Amid such volatility, long-dated securities were logically affected worst. Moreover, riskier securities with higher coupons held up better that bonds commanding a lower risk premium. Unlike during previous economic downturns, fixed income securities were unable to play their protective role against sliding equities.
A closer look reveals that positive bond portfolio performance in 2022 was driven by the ability to switch to a negative duration profile in order to benefit from the same increasing interest rates and spreads that usually penalise bonds.
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The opinion expressed above is dated 6 January 2022 and is subject to change.
See also: https://latribune.lazardfreresgestion.fr/en/high-yield-higher-yields-lie-ahead/
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