In the last two months, International Bond ETFs have witnessed a return of 6.5% similar to November- December 2023. The difference this time is that most central banks have started with rate cuts and few left will enter this phase. The only outliers are the Bank of Japan where rate hikes continue due to local inflationary factors and the Reserve Bank of India which is firm on its stand for now as its local bonds get added to Global indices.
According to flow data, Aug 21 - Aug 28 saw the largest inflow in six weeks amounting to $17.69Bn. US bonds alone witnessed an inflow of $9.58Bn. This is after yields fell by 11% over the last two months.
Currently, the Fed rate swap market is factoring three rate cuts this year with a total cut amounting to 100 bps. Whether this happens or not will depend on the data. The focus of FOMC will be unemployment as it reaches a recent high with a continuing rising trend for now. The other data might be manufacturing-related as some indications of a slowdown have already started.
The quantum and pace of rate cuts might be the variables that decide on the bond market performance till year-end. As per long-term seasonality, we are in the falling phase, especially in US bonds.
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