Fixed income suffers its worst year in half a century

Nothing less than catastrophic is the only way to describe 2022 for fixed income. According to Vanguard, there hasn’t been such a bad period since 1969, when bonds were yielding negative 8.1%. So far this year, US Treasury bonds (the global benchmark for fixed income) have fallen 11%, while the equivalents for Germany and the eurozone are down 12.5 and 13% respectively, according to the BofA ICE indices. The bonds of companies with the best credit rating, both American and European, have also gone through a rough patch, with falls of more than 10%. And in the case of those rated below investment grade, the losses have been greater.

These data show that no asset is risk free, as explained by Daniel Sancho, investment manager at MAPFRE Gestión Patrimonial. "Investors and the market in general must learn that fixed income can also be volatile, hence the need for good advice," he details. In fact, there are portfolios that have weathered the risk very well, with small falls of 2 or 3% and we’ve even seen some perform better than equities.”

In any case, it would seem that the worst is behind us. The improvement in liquidity and the calm tone emanating at macroeconomic level have allowed prices to adjust and profitability to rise. Alberto Matellán, chief economist at MAPFRE Inversión, expects bond yields to increase by the end of the year and remain stable for at least the first few months of 2023. Some of the world's largest banks, such as JPMorgan or Goldman Sachs, are also optimistic, although the latter’s figure is closer to current levels (around 3.3%) even if inflation continues to surprise upwards.

Although there’s no certainty as to how much bonds will rise, what is clear is that the effects of inflation are covered in the long term, which is why both of MAPFRE’s analysts recommend investing in companies capable of withstanding price fluctuations. Optimism would seem to have improved in this respect also: year-on-year inflation in the euro area fell by six tenths of a point in November, to 10%. This is the first drop since June of last year and is better than the figure most governments had expected and suggests that inflation has now peaked.