It has certainly been an eventful year for the bond markets.
For the better part of this year, the US Treasury returns, which are known to have an inverse relationship with bonds had been on a downward trend before a bailout from the country’s reserve bank and other global players including the Bank of Japan and the European Central Bank.
The year has also registered some of the lowest interest rates in the history of bonds. Global debt continued to surge to a new high of $250 trillion by the end of the first half of this year, with the world’s largest economies the US and China taking the lead when it comes to borrowing.
According to a professional trader, the bonds wild ride is not about to die down any time soon.
“The bond phenomenon of 2019? I don’t think it’s over yet,” said Jeff Kilburg, founder and CEO of KKM Financial.
Kilburg, who is credited with more than two decades of investment experience, stated during an “ETF Edge” interview that his biggest takeaway from the bonds market in 2019 is the Fed’s wholesale policy departure from its last year’s plan to raise interest rates at least three times to slashing the rates three times this year.
“How quickly it changes. But that accommodative stance, no matter what your view is on the bond market, that has really been relevant. … This is the most money we’ve seen in the system in 10 years. So, I think that money has to work its way through and therefore when you look at the 10-year note being under 2% still in comparison to some of the other foreign … percentages like the German bund, I still think it’s still attractive. If we do get to 2%, I think you see that rebalance come back in and buy those Treasuries,” Kilburg said in a CNBC interview.
Jay Jacobs who is the senior vice president and head of research and strategy at Global X ETFs stated that longer-term bonds are likely to experience short-term hits due to a “fantastic” trading year.
“People are starting to take those profits and move them into equities, where we’re starting to see kind of a warming equity market. I think the caution here is some of the equities that are more bond-like, like utilities, are very expensive, so people should probably look at the lower-valuation, cheaper-yielding stocks like in financials, where there are better valuations, as a bond replacement,” Jacobs said during the same interview“ETF Edge” interview. Kilburg agreed with Jacob’s sentiments adding that the signing of the phase 1 trade could further spur this kind of market activity.