Bonds represents a state of indebtedness, a bond is a loan issued by governments and corporations to finance particular projects such as building roads or research. These bonds can be traded by investors who will then receive the future payments - including interest known as ‘coupons’ - until the bond matures.
Bonds with a fixed interest rate are also known as ‘fixed-income securities’ because the corporation loaning the money can calculate the total sum they’ll receive if a bond is held until it matures.
During a period of high interest rate, bonds can become more lucrative as the yield on bonds increases. If the country’s central bank keeps interest rates low throughout the lifetime of the bond, then the yield isn’t likely to be high so they price of bonds is pushed higher.
Find the latest bond market news with MacroMatters, from rates fluctuations and government policies.
Our Asset Allocation team includes dedicated and experienced strategists whose focus is to forecast the outlook and the stage of the market cycle for their specialist asset class, including bonds and equities. They work alongside our in-house economics team who focus on assessing the underlying macroeconomic environment. Our economists then work with our team of strategists and portfolio managers to translate their views into what this means at a portfolio level.
Five months is a long time in Italian politics. Back in June, we observed that Italy was too big to fail, but also too big to bail. We were also waiting for the almost inevitable clash with the European Commission over the budget. That has now arrived and we have started trading Italian risk in the new higher range for spreads.
* (Bubbling Tensions in Politics)
One-day corrections of 3% are always painful, especially so when investors have become so accustomed to low volatility after almost a decade-long bull market. We see the move as most likely a technical sell-off (famous last words) and believe it is probably too early to buy the dip.