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Volatility is to be expected in the stock market. And volatility goes both ways, in case you had forgotten. You all know about the war, the fight against inflation and the hawkish central banks, so I won’t go into that.

More noteworthy, in my opinion, is the fact that US 10-year government bonds also lost 8%. We’re used to seeing US Treasuries referenced by their yield, not by their total return. This has obscured the drama unfolding in the bond market.

To wit: Since August 2020, these bonds have delivered a total return of -37%. That’s right, they lost more than a third of their value in little more than two years. The S&P 500, meanwhile, lost less than 9%.

The Bloomberg Global Aggregate Index is now down 20% for the year. This has led to comments that the present bond market is the worst since 1949. I dare say it’s a lot worse, as outstanding volumes are now vastly larger. This year alone, as a rough estimate, global bond values have fallen by some $25 trillion. That’s on par with losses in the global stock markets.

It’s tempting to quote Wikipedia: “In business valuation the long-term yield on the US Treasury coupon bonds is generally accepted as the risk-free rate of return.”

Well, if you stretch long-term all the way to ten years, you’re swimming in interest-rate risk. With the exception of the Nordic corporate bond market, global bond investors are doomed to invest in bonds with fixed coupons. In times of rising interest rates, with lots of long-duration bonds issued over the past few years, that’s very expensive.

 Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager’s skill, the fund’s risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments. This is marketing communication.



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