Global Bonds Extend Gains as Inflation Fears Fade and Easing Wave Expected

According to Yahoo News, bonds worldwide are experiencing an increase in gains as expectations rise for a wave of easing in 2024 due to diminishing inflation concerns. An index of sovereign debt, excluding US Treasuries, reached its highest level since April 2022 as traders anticipate the European Central Bank (ECB) cutting interest rates before the Federal Reserve. US government notes are also on track for their first annual gain in three years, as bond investors prepare for an end to the economic resilience that made 2023 challenging. Prashant Newnaha, a rates strategist at TD Securities Inc. in Singapore, stated that inflation fears are dissipating, and central banks may need to cut rates to avoid overly high and restrictive real rates. Dovish comments from ECB officials have led investors to predict a European rate cut as early as March 7, with strong chances of the Fed following suit two weeks later. Even New Zealand, whose central bank recently suggested rate hikes in 2024, is now expected by markets to cut rates in May. A Bloomberg index of non-US government bonds has risen 6% since December 30, after struggling for much of the year. US Treasuries have rebounded to a 1.8% return in 2023, after being down as much as 3.3% in mid-October. The shift in rate expectations over the past week occurred as former hawks on both sides of the Atlantic backed down from further tightening considerations. Fed Governor Christopher Waller even acknowledged that the Fed would consider cutting rates if inflation continues to fall.