JP Morgan preannounces the great comeback of bonds from all over the world, thanks to a net demand of 1 trillion dollars: According to a Bloomberg article, JP Morgan explains the bullish outlook on bonds with the decline in supply, which is expected to proceed at a faster pace than the decline that will affect demand.
To be precise, according to the calculations of the strategists of the US banking giant from the London office, led by Nikolaos Panigirtzoglou, global bond supply will fall by $1.6 trillion next year: the decline will be much stronger than demand, which will show a much smaller decline, equal to $700 billion.
A decidedly different and better picture than in 2021, when bond applications plunged by $5.9 trillion. And 2022 was another year to forget for bonds, which entered the first bear market in a generation.
The reason for the crash is to be found in the roundup of anti-inflation rate hikes launched by central banks, which have inflamed yields and volatility.
JP Morgan’s view on global bonds after 2021-2022 losses
In particular, sovereign debt bonds, i.e global debt securities have slipped 16% this year, reporting the second consecutive year-on-year decline since at least 1990, according to a Bloomberg index.
It is however true that the same index rose more than 5% in November, thanks to the attractiveness of higher yields and the prospect of a Federal Reserve close to slowing down interest rates. An auspicious sign for 2023.
“After the unprecedented deterioration this year, we estimate that the relationship between the demand and supply of bonds best – wrote the strategists of JP Morgan – With analysts focusing on the outlook for 2023, there is a consensus view that slowing GDP growth and weakening inflation will contribute to the decline in bond yields.
Bloomberg recalls that central banks should sell a greater quantity of sovereign bonds during 2023 through the tool of the Quantitative Tighteningalready adopted by Jerome Powell’s Federal Reserve and about to be launched – not without some concern – also by Christine Lagarde’s ECB.
QT, the ECB threat that besieges the BTPs is close. Above all, Germany and Holland are undermining
According to the JP Morgan team, too commercial banks are preparing to sell the bondsa factor that should depress their prices.
On the other hand, however, it is possible that the demand will increase from the companies that manage foreign currency reserves, by pension funds and also by retail investors, with the latter two categories attracted by the higher yields.
Strategists added that the increase in net demand next year should have the consequence of bringing down the yields of the Bloomberg Global Aggregate bond index by 40 basis points, compared to the current value, equal to 3.52%.