Traders are expecting a rate cut of 25 basis points next week.
Three years after a surge in inflation pummeled fixed-income markets all around the world, global bonds have finally re-entered bull market territory.
Bloomberg’s GlobalAgg Index, which tracks sovereign and corporate debt across developed and emerging markets, has surged more than 20% from its 2022 trough to its highest level since March 2022 amid a broad fixed-income rally. The latest leg higher came as cooling US labor data fueled bets the Federal Reserve would step up policy easing.
Traders now expect the Fed to reduce interest rates by 25 basis points next week, with some wagers pointing to a half-point move. Bonds have gained ground as central banks slash borrowing costs in response to ebbing inflation and mounting signs of labor market strain.
“The dominant theme in the markets over the past 24 hours has been the continued global bond rally,” Deutsche Bank AG strategists including Jim Reid, wrote in client note. “This has helped ease pressure on the latest French political crisis”
Despite the rebound, longer-dated bonds remain under pressure amid mounting fiscal risks. France’s premier has warned of a debt crisis as the government reels, while in the UK investors await Chancellor Rachel Reeves’s November plan to balance growth initiatives with spending restraint.
In Japan, Prime Minister Shigeru Ishiba’s decision to step down has fueled uncertainty, raising the prospect of a successor viewed as less committed to fiscal discipline.
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