The biggest story in the bond markets right now is a return of the “taper tantrum” we saw in years gone by. Although the Federal Reserve has not indicated any monetary tightening, bond yields in many developed markets have spiked on greater inflation expectations resulting from the new US$1.9 trillion ($2.5 trillion) US stimulus package. The 10- year US Treasury yield hit 1.67% on March 26, 2021 — its strongest level in over a year and almost 75 basis points (bps) higher than end-2020 levels. Ten-year UK gilts surged from 0.20% to 0.76% over the same period, while 10-year German bonds moved from –0.58% to –0.35%.
Credit: Bloomberg
As inflation expectations rise and bond yields spike, Asian bonds have remained relatively resilient. We examine three factors that are helping to support the region’s fixed income markets.
