Chart of the week
The tightening of monetary policy by central banks is leading to a general rise in interest rates, including for long maturities. The rise in rates reduces the price of bonds already issued. If the carry does not compensate for this price effect, the investment will have a negative performance.
The Bloomberg US Treasury index, which represents the performance of US Treasury bonds, with the exception of the shortest maturities, has lost more than 8% from its summer 2020 high, a record since the inception of the index in 1973.
The average yield on US Treasury bonds is now 2.2%. If rates were to remain at current levels, it would take almost four years to make up for the losses accumulated since early August. But the most likely outcome is that rates will continue to rise over the next few quarters and weigh even more on performance. With an average duration close to 7, a 30 basis point increase would be enough to erase another year of carry.
What will be the impact of this decline on household wealth? Bond investments represent less than 10% of households’ financial assets, far behind equity investments, pension rights and bank deposits. Real estate assets represent four times these bond assets. It is therefore equities and real estate that will have the most significant impact on household finances.
See also: https://latribune.lazardfreresgestion.fr/en/eurozone-inflation-still-accelerating/
The opinion expressed above is dated March 18, 2022 and is subject to change.
*Sources : Bloomberg and calculation from Lazard Frères Gestion
As of : March 18, 2022
This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS. LAZARD FRERES GESTION – a simplified joint stock company with share capital of €14,487,500 – Paris Trade and Companies Registry No. 352 213 599. 25, RUE DE COURCELLES – 75008 PARIS, FRANCE