- Bonds hit their highest one-month return for more than a decade.
- Equities have already factored in expected rate cuts through 2024.
- COP28 launches in Dubai.
Optimism around the direction of future monetary policy has helped light a fire under fixed income as investors anticipate interest rate cuts in the new year.
The Bloomberg Global Aggregate Total Return Index saw a 5.0% rise during November – the biggest bounce back since the 6.2% surge posted in December 2008 at the height of the Global Financial Crisis.1
Yields retreated across the board, with the benchmark 10-year US Treasury yield falling 40bps from the start of the month to 4.3% by the end of November.2
The rebound in bond markets follows similar moves in equities. From the start of November through to month’s close, the US blue-chip S&P 500 Index rose 9.1%, likewise the UK blue-chip FTSE 100 increased 2.3% and Germany’s DAX was up 10.2%.3
Investors’ newfound optimism is based on expectations of a pause and then a retreat from current monetary policy. Futures markets have all but priced out any additional hikes from the US Federal Reserve this cycle with the expectation of four cuts to interest rates through 2024, starting in June.4
The Federal Open Market Committee’s (FOMC) final meeting the year is scheduled for 13 December.
Figure 1: Global bonds on a tear
Figure 2: Treasury yields dip on rate cut hopes
Launch of COP28
The other big news this week was the start of the COP28 climate summit in Dubai. In a year that is all-but-certain to be the hottest on record5, the conference will see the first ‘stock take’ of progress in fighting climate change since the Paris Agreement eight years ago.
Leon Kamhi, Head of Responsibility at Federated Hermes, who is attending the conference, highlights the need to make real progress in fighting climate change that is not self-defeating.
“Often COP is about talk but this year the summit does need to be about action,” he says. “We need to see a commitment from governments and from companies that they will invest in the transition.”
Here, says Kamhi, the onus is on the agenda-setters to look beyond simply reducing CO2 but also to be aware of the impact of their decisions in the wider world.
“As well as fighting climate change it’s about considering the needs of the ordinary employee, the ordinary consumer,” he says. “Reducing CO2 is essential, but will food and energy be affordable for people – not just in the world’s developing economies but in the developed world too? It’s an obvious point, but if we can’t make a just transition then there isn’t going to be a transition.”
Figure 3: Global temperatures have soared in recent decades
1 Source: Bloomberg, 30 October to 30 November 2023.
3 Source: Bloomberg, 30 October to 30 November 2023.
4 Source: Federated Hermes analysis.
5 Source: World Meteorological Organisation, 1 November 2023.