Despite the persistence of low yields across the fixed-income market, investors continued to plough money into the asset class last month pushing up prices in a reach for yield at any cost.

According to Credit Suisse’s Monthly Global Fixed Income Index Performance report, all fixed income indexes reported gains for the month of July extending year-to-date gains further. The US Government Index rose 0.41% in total returns last month taking year-to-date returns to 5.78%. Shorter tenor returns, specifically the 7 to 10 tenor bucket and 5 to 7 tenor bucket gained 0.31% and 0.21% respectively while the 10PLUS tenor bucket posted 2.22% in total returns taking year-to-date returns to 17.71% making it one of the best performing asset classes so far this year.

Investors Abandon Gold, Equities Turn To Bonds

The Liquid US Corporate Index generated a positive total return of 1.50% for July taking year-to-date returns to 9.77%. All sectors reported a positive performance for the month. The LUCI Utility sector chalked up the best performance with a total return of 1.6% taking year-to-date returns to 14.35%. Utilities were closely followed by the LUCI Industrial sector and the LUCI Financial sector, which added 1.58% and 1.30% in total returns (10.50% and 7.16% year-to-date, respectively).

Gold & Silver Gain as Stocks & Bonds Drop, JGBs Make ‘Bazooka’ Move, Euro Banks ‘Brutal’

Over in Europe, the European Government Bond Index produced a positive total return of 0.82% July taking year-to-date returns 6.33%. At the end of July, German bund yields had fallen to fresh lows of -0.35%.

Bond Yields, Data Tantrum
Investors Continue To Buy Sovereign Bonds

Europe’s sovereign bonds charge higher

A combination of investors’ search for yield coupled with the European Central Bank’s QE bond-buying bazooka has forced European investors to look to the periphery in the search for yield, avoiding the bonds of core European nations and taking on more risk in the search for yield. e Slovenian government bonds generated a positive 1.6% in total returns last month taking year-to-date returns to 5.89%. On the other hand, Spanish and Portugal government bonds only produced total returns of 1.34% and 1.3% respectively last month. After these gains, year-to-date returns for Spanish and Portuguese government bonds stand at 6.32% and -0.27% respectively.

Emerging Market Bonds Are The Hot New Trade But…

The Liquid Eurobond Index advanced in the past month with a positive 1.64% in total returns, taking year-to-date returns to 6.05%. Once again, all industry subsectors had gains for the month most evidently in the LEI Utility sector and LEI Industrial sector with 2.00% and 1.81%, respectively (6.83% and 7.43%, year-to-date).

With regard to emerging market bond performance, Credit Suisse writes:

“The Emerging Market Corporate Index (EMCI) generated positive returns over the month of July. There was a resilient appetite for emerging market bonds.

The Emerging Markets Corporate Index (EMCI) recorded positive 1.49% in total returns last month (9.55% YTD). As U.S. Federal Reserve and European Central Bank kept yields at historic low, hunt for yields remained resilient within emerging market bond space. All sub-regions in the index rose with the EMCI Americas gaining most last month at 2.73% (15.24% YTD). The EMCI Asia and EMCI EMEA also added 1.19% and 0.44% in total returns (6.88% and 7.99%, YTD). Sector-wise, all subsector indices generated positive returns. Of significance, the EMCI Industrial sector continued to outperform with returns of positive 2.06% (11.84% YTD).”