Bond Volatility Will Increase

The rules for how things are ‘supposed to work’ in bonds have been thrown out the window with last week’s unprecedented volatility. What does this mean for investors?

J.P. Morgan Asset Management 20 October, 2014 | 3:43PM
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Morningstar's "Perspectives" series features investment insights from third-party contributors. Here,  absolute return fixed income investor Bill Eigen, manager of the JP Morgan Income Opportunity Fund, comments on what bond market volatility means for investors.

Last week was the equivalent of the ‘flash crash’ in U.S. Treasuries.  We saw 10-Year Treasuries move from 220 to as low as 182 then back to 215 all in one day, which is not a healthy sign.  This in combination with poor economic data coming from Europe and fundamental issues weighing on investors created a toxic mix.

Running traditional fixed income today is very much about parsing the words of central bankers, whose policies effectively control the markets. But with the Federal Reserving prolonging the day of reckoning by refusing to raise rates despite the decent economy, the ‘follow-the-Fed’ investment strategy won’t work forever.

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About Author

J.P. Morgan Asset Management  is the investment arm of JPMorgan Chase & Co. and it is one of the largest active asset managers in the world.