Bond Yields Will Rise in 2018

Good news for income investors - fixed income is going to pay a better rate of interest next year, says Morningstar's Peter Gee

Peter Gee 27 December, 2017 | 11:16AM

The process of normalisation of interest rates in the major developed economies is, very slowly and gradually, getting under way, and interest rates look likely to rise in 2018, creating issues for bond investors. At the Fed’s latest meeting, the policy participants made forecasts of where they think the Fed fund rates will go over the next few years. This time round, the forecasts were, on average, for three further 0.25% increases by the Fed in 2018. That’s rather more than financial markets currently think will actually happen.

Futures prices, as recast in the CME Group’s “FedWatch” tool, say there is only a 7% chance of all three increases, with only one looking rather more likely. But either way the Fed is clearly moving away from its previous very stimulative stance, via both higher short-term rates and a wind-down of its bond-buying, which had been keeping bond yields low.

Some other major central banks have also moved away from their previously ultra-easy policy, notably the Bank of Canada and the Bank of England. However, the European Central Bank thus far has only reached the point of buying fewer bonds each month than previously: It is still adding to its stock, whereas the Fed has progressed to running down its stockpile.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Peter Gee  is a Fund Analyst for Morningstar Australia

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2020 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies