Thomas De fauw

The risk of recession and persistent inflation resulted in a correction of almost all risky assets. Also high yield bonds ended the first half of the year with heavy losses. An update:

Interest rate hikes in developed markets caused most bond categories to be deeply in the red after the second quarter of this year. High-yield bonds were not spared: The ICE BofA Glb High Yield Constrained Index closed the second quarter of 2022 with a loss of 5.7 percent measured in euros after giving up 4 percent in the first quarter.

With a first-half loss of 7 percent when measured in euro, the GBI-EM Global Diversified Index, the benchmark for emerging market bonds, was by no means the worst student in its class.

The past six months have been one of the toughest for bonds ever. Especially long-dated bonds have taken a beating. The Bloomberg Euro Aggregate 10+ Year index fell by no less than 23.6 percent while the Bloomberg Euro Aggregate 1-3 Year index was “only” 2.9 percent lower.

Few asset classes offered protection in this market correction, but investors who chose bonds with shorter maturities were able to limit losses somewhat.

Chinese bonds have defied the general negative trend in bond and credit markets this year until recently, but ended May with heavy losses. 

The neutral mixed fund portfolio consisting of 50 percent equities and 50 percent bonds remains popular despite year-to-date losses.

As expected, 2022 looks set to be a turbulent year for fixed income assets. High-yield bonds shared in the blows dealt in the first quarter. 

The asset class is caught in a general bear market for bonds.  The GBI-EM Global Diversified Index, the leading benchmark for emerging market bonds, continued its downward trend and closed the first quarter of 2022 with a loss of 4.4 percent measured in euros.  In this difficult market, it is Man GLG that has been the best performer this year. 

During the brief period between the release of most Covid-19 measures and the start of the war in Ukraine, inflation was the order of the day. And although we currently live in a more complex and visibly less global world, inflation still seems to be the number one issue for financial markets.