The difficult year in the bond market is coming to an end

Traders work on the floor of the New York Stock Exchange, in New York City
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 9, 2021. REUTERS / Brendan McDermid

December 21, 2021

By Dhara Ranasinghe, Yoruk Bahceli and Stefano Rebaudo

LONDON (Reuters) – It’s been an extraordinary year for bonds after long-dormant inflation spiked and central banks began rolling out unprecedented stimulus measures due to COVID-19 cause.

The European Union became a major borrower and sold 140 billion euros worth of debt, Britain and Italy joined the rapidly growing green bond market, and junk debt had a stellar year.

Here are some eye-catching moves of 2021.


The yield on the 10-year Treasury note rose about 50 basis points, set for its biggest annual gain in terms of absolute value since 2013.

US bond yields fell 3%, making Treasuries one of the worst performing major bond markets in 2021.

At 1.42%, 10-year yields appear relatively modest as inflation has hit a four-decade high near 7%.

But with the Federal Reserve speeding up the possibility of policy tightening in 2022, yields are forecast to rise above 2% next year.

(Graphic: 10-year US Treasury yields set for biggest annual decline since 2013,


Italian bond yields are poised to end 2021 with their second biggest annual gain since the euro debt crisis in 2011, as the European Central Bank returns to its bond-buying stimulus. .

10-year borrowing costs rose about 40 bps this year to 0.95%, not as dramatic as the 78 bps increase in 2018 as markets worried about Italy’s commitment to the euro.

The German 10-year Bund yield is up just 20 bps this year, highlighting the divergence between the eurozone and US monetary policy as well as the uncertainty caused by Omicron.

(Graphic: Negative returns for most major bond markets in 2021,


Australia’s central bank in November abandoned its ultra-low target for bond yields in a policy known as yield-curve control, a step towards a pandemic-era stimulus solution.

Expectations of tighter policy have pushed the three-year yield by 82 bps this year to 0.92%, marking the biggest annual gain in 12 years.

In the UK, where the Bank of England unexpectedly raised interest rates this month, yields on two-year bonds saw their biggest annual gain since 2006.

(Image: UK two-year bond yield,


The European Union has completed its transformation into a major borrower after it began issuing bonds to finance its post-pandemic recovery fund, worth up to 800 billion euros ($902 billion).

The EU has raised 91 billion euros in bonds and bills of lading for the fund this year, after raising another 50 billion euros for the sure job unemployment program it started funding last year.

It also sold the world’s largest green bond, raking in 12 billion euros from record demand.


Green bond issuance is set for another record year, nearly doubling from last year to nearly $500 billion, according to Refinitiv data.

UK, Italy, Spain and EU issue green bonds for the first time.

Increased issuance of green bonds has reduced the scarcity, reducing the “green” investors have to pay to acquire the company’s green bonds.

According to Refinitiv, the issuance of sustainability-linked bonds, which are related to company-wide goals rather than specific projects, increased 11-fold to $91 billion.

(Graphic: European ESG Bond Issue Stock,


With inflation rising, investors have flocked to inflation-linked bonds for protection.

Such bonds have performed the second best in the fixed-income market this year, according to the BofA index.

Key market gauges of long-term inflation expectations have also spiked, including in the euro area and in the UK.

(Graphic: Inflation increases as price pressures increase,


The lowest rated junk bonds, at Triple C and below, are set to return close to 10% in both the US and euro markets, the BofA index shows, as investors gather assets. yield any real profit while inflation is hot.

Attractive funding costs have prompted junk companies to issue $646 billion in bonds, a record second year of operation, even as investment-grade issuance declines, according to Refinitiv.

The opposite is Asia, where real estate company Evergrande’s calamity has battered high-yield Chinese bonds. According to BofA, the dollar market will lose 30% this year.

(Graphic: Evergrande disaster crushes China HY,

(Editing by Tommy Wilkes and Ed Osmond) The difficult year in the bond market is coming to an end

Bobby Allyn

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