Economy

LONDON (Reuters) -Investors have poured a record $600 billion into global bond funds this year, taking advantage of some of the highest yields in decades ahead of an uncertain 2025.Dwindling inflation has finally allowed central banks to lower interest rates, pushing investors to lock in the relatively high yields available and finally delivering the “year of the bond” after $250 billion left fixed-income funds in 2022. “The story is income,” said Vasiliki Pachatouridi, head of EMEA iShares fixed income strategy at BlackRock (NYSE:BLK). “We are seeing the income being put back into fixed income. We haven’t seen these levels of yields in almost 20 years.”Bond yields tend to fall, and prices rise, as central banks reduce short-term borrowing costs.Although returns on the ICE BofA global bond index have been middling at around 2% this year, the yield on offer topped 4.5% late last year, the most since 2008.As of mid-December, $617 billion had flowed into developed and emerging market bond funds, according to financial data provider EPFR, topping 2021’s $500 billion and putting 2024 on track to be a record year.Stocks, meanwhile, have drawn $670 billion of inflows as indexes in the U.S. and Europe scale new heights. Cash equivalent money market funds, which boast high yields and little risk, have fared the best, pulling in more than $1 trillion.CREDIT CRAZECorporate bonds, which offer higher yields than equivalent government debt, have proven particularly popular, rallying as companies weathered the rise in central bank interest rates.The yield on the ICE BofA global corporate bond index has fallen to its lowest over risk-free government debt since before the financial crisis in 2007.”Before interest rates started to drift up a few years ago, a lot of companies locked in their funding for a long time,” said Willem Sels, global chief investment officer at HSBC’s private bank.”Therefore, the impact of rising borrowing costs on corporates was much less than people expected. At the same time, a lot of companies earned more on their cash holdings.”PASSIVE AGGRESSIVEInvestors have shown a clear preference for passive exchange-traded funds (ETFs), which were on track for a record year with $350 billion of inflows by the end of November, according to Morningstar Direct data.”ETFs give investors access to a number of assets that previously were harder to trade, including bonds,” said Martin Oehmke, professor of finance at the London School of Economics.”Corporate bonds, for example, are notoriously illiquid and ETFs offer easy access to this market in a much more liquid form.”The two biggest passive fund players – BlackRock and Vanguard – have reaped the benefits.BlackRock’s iShares fixed income ETF business alone attracted $111 billion of inflows between January and the end of October, according to estimates from Morningstar Direct. Vanguard’s bond funds took in an estimated $120 billion, the vast majority of which went to its index business which includes ETFs.PIMCO, traditionally known for its active management, has also had a strong year. It has drawn around $46 billion into its bond funds, according to Morningstar, after shedding some $80 billion in 2022.FLOWS COULD SLOWA number of factors could cause inflows to slow in 2025. President-elect Donald Trump’s tax-cutting and deregulatory agenda has caused U.S. stocks to jump and inflows into equities to surge, limiting the appeal of bonds.Data from EPFR and TD Securities shows $117 billion flowed into U.S. stock funds in the four weeks after Trump’s Nov. 5 victory, more than four times the $27 billion into global bonds.Meanwhile, investors are sceptical that corporate bonds can rally much further after this year’s strong performance.”It seems very hard to continue to expect spreads to tighten much more, and I don’t believe that bond yields will be much lower from where we are today,” said Carl Hammer, global head of asset allocation at Swedish bank SEB. More

This event has added to the existing political challenges faced by Prime Minister Justin Trudeau. The minority Liberal government was hit with another setback on Monday when Finance Minister Chrystia Freeland announced her unexpected resignation. She cited policy disagreements with Trudeau, who she claimed had proposed she take on a reduced role.Over the past 18 months, numerous opinion polls have indicated that the official opposition Conservatives are likely to defeat the Liberals in the upcoming election. In the 2021 election, the Liberals narrowly secured a win with 39% of the votes, slightly surpassing the Conservatives who received 36%.Elections Canada reported that the Conservatives won 66% of the votes in Monday’s election in the Cloverdale—Langley City constituency, leaving the Liberals trailing in second place with 16%. The election was conducted to fill a vacant seat.This loss marks the third consecutive time the Liberals have been defeated by the Conservatives in a special election.Following the defeat, Liberal legislators met with Trudeau on Monday night, with some reiterating their demands for his resignation.Chad Collins, a legislator from Ontario, Canada’s most populous province and a Liberal stronghold, voiced the sentiment of some members. “We’re not united. There’s still a number of our members who feel we need a change in leadership,” he stated. Collins suggested that the only way forward was to select a new leader and present Canadians with a new plan and vision.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

OTTAWA (Reuters) – Canada’s ruling Liberals lost a special election in the western province of British Columbia, provisional results showed on Tuesday, deepening the political woes of beleaguered Prime Minister Justin Trudeau.The minority Liberal government was rocked on Monday when Finance Minister Chrystia Freeland unexpectedly resigned, citing policy differences with the prime minister whom she said had asked her to take on a lesser post.A string of opinion polls over the last 18 months suggests the Liberals are going to be crushed at the next election by the official opposition Conservatives. In the 2021 election, the Liberals had won with 39% of the vote, just ahead of the Conservatives on 36%.Elections Canada said the Conservatives had taken 66% of Monday’s vote in the constituency of Cloverdale—Langley City with the Liberals in second on 16%. The election was held to fill a vacant seat.The defeat marked the third time in a row that the Liberals had lost a special election to the Conservatives.Angry Liberal legislators met Trudeau on Monday night, with some repeating calls for him to go.”We’re not united. There’s still a number of our members who feel we need a change in leadership,” said Chad Collins, a legislator from Ontario, Canada’s most populous province and a Liberal stronghold.”I think the only path forward for us is to choose a new leader and to present a new plan to Canadians with a different vision,” he said after the meeting.Trudeau aides declined to answer questions about what he might do next. Global News cited two sources as saying Trudeau was not in a mindset to resign.While he cannot be forced out by his caucus, he may find it harder to stay in office if enough Parliamentarians openly call on him to go. So far only a handful have done so.In another blow, the traditionally pro-Liberal Toronto Star – the largest circulation newspaper in Canada – on Tuesday ran an editorial saying it was time for Trudeau to leave. More

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JAKARTA (Reuters) -Indonesia’s anti-graft agency raided the headquarters of the central bank in Jakarta on Monday in relation to a probe into alleged mishandling of a corporate social responsibility programme, the agency and the central bank said.The office of Bank Indonesia (BI) Governor Perry Warjiyo was among those raided, where investigators took documents and electronic devices related to the programme, deputy chief investigator Rudi Setiawan told reporters on Tuesday. The anti-graft agency suspected that the central bank had donated some of its CSR funds to several foundations improperly, Setiawan said.”We’ve already had two suspects that we allege had received funds from BI’s CSR,” Setiawan said. He declined to provide names, nor the size of the funds, but he said the money flow was “quite big”.Investigators would question all central bank officials relevant to the probe, he said. BI said it respected the investigation and would cooperate with the anti-graft agency.The agency in September had said it was investigating CSR programmes run by financial regulators in 2023, including the central bank, for potential misuse of funds for personal gain, according to local media.Warjiyo in September said BI had cooperated with the probe, but defended the governance of its CSR funds.”We can ensure that CSR or BI’s social programmes have strong regulatory governance and their decision-making process is through stages,” Warjiyo told a press conference at the time. BI typically donates to education, social empowerment or religious foundations.The beneficiaries are selected following a survey and must meet a set of requirements, Warjiyo said at the time, adding the board of governors decides on the size of such donations.The central bank allocated 1.6 trillion rupiah ($99.66 million) in 2023 for social programmes and projects supporting micro-, small- and medium-enterprises, as well as price stabilisation measures, according to BI budget documents provided to parliament. There was no breakdown of or details about the use of the funds.The raid happened a day before the central bank started its two-day policy meeting on Tuesday, with its decision due to be announced on Wednesday. It is expected to keep policy rates unchanged, according to a narrow majority of economists polled by Reuters.($1 = 16,055.0000 rupiah) More

BENGALURU – U.S. Treasury yield forecasts from bond strategists have marched higher for a second month amid expectations of limited remaining Federal Reserve rate reductions and rising inflation risks in 2025, a Reuters survey found.Having kicked off its easing cycle with a jumbo half-percentage point cut in September, the central bank has lowered its fed funds rate by 75 basis points and looks set to trim another 25 bps on Wednesday to 4.25%-4.50%.Yet, since the first reduction, the benchmark U.S. 10-year Treasury yield, which moves inversely to prices, has shot up around 70 basis points – hitting a near six-month high of 4.50% last month.The resilience of the world’s largest economy and President-elect Donald Trump’s proposed policies from tariffs to tax cuts – all expected to be inflationary – have put a dampener on the Fed’s easing plans and pushed yields higher, particularly on longer-dated bonds.While the benchmark 10-year yield has moderated to around 4.40%, the median forecast from a Dec. 12-17 Reuters poll was for it to fall modestly to 4.25% in a year – above the 4.10% recorded last month and 50 bps higher than an October median.Around 55% of forecasters raised their twelve-month 10-year note yield forecasts from November.”If Trump’s policies focus on pushing growth up via increasing deficits, rates have even more room to move up,” said Zhiwei Ren, portfolio manager at Penn Mutual Asset Management. “Over the coming two years, it’s very hard to see those deficits coming down materially – which means the government will have to sell a lot of Treasuries to finance spending.” An Oct. 28 estimate from the Committee for a Responsible Federal Budget, a budget-focused think-tank, found Trump’s proposed policies could push up U.S. fiscal debt by $7.75 trillion over the next decade.”Inflation was coming down sharply during the summer, but now that has stopped. The labor market has weakened a bit, but is still strong. Consumer spending is resilient and equities are hitting record highs. Financial conditions may not be as tight as the Fed thinks,” Ren added. “If the Fed keeps cutting in this raging bull market, long-end rates will move even higher.”In line with interest rate futures, economists surveyed by Reuters last week now expect only three more quarter-point rate cuts next year – half the amount predicted earlier this year.Yet, forecasters remained mostly conservative in their point estimates for higher yields.Survey medians from 44 strategists showed the benchmark yield slightly below current levels at 4.30% in three months and 4.27% at end-May, but both higher than November.”Market rates are likely to remain around current levels,” said Robert Tipp, chief investment strategist at PGIM Fixed Income. “While the Fed is likely to continue to cut, it definitely won’t be the one-cut-per-meeting pace priced in at some points over the last several quarters.”A 75%-strong majority, 15 of 20 strategists, responding to an additional question said the 10-year yield was unlikely to cross 5% next year. The last time it did so was in October 2023.”One of the scenarios we considered is a ‘higher for longer’ yield curve, where the 10-year yield could return to 5%. In that case, extending duration, i.e. buying longer-dated bonds, could be detrimental. But it’s not our base case,” said Hong Cheng, head of fixed income and currency research at Morningstar. More

OTTAWA (Reuters) -The abrupt resignation of Canada’s finance minister leaves the government adrift less than a month before the inauguration of a new U.S. administration that could impose crippling sanctions on Canadian exports.Chrystia Freeland quit on Monday after Prime Minister Justin Trudeau offered her a lesser position. She said his wish to increase spending could endanger Canada’s ability to withstand the damage done by the tariffs that U.S. President-elect Donald Trump is threatening to impose.Freeland had headed a special cabinet committee on Canada-U.S. relations and was working closely with the 10 provinces to ensure a united response.”As a country we have to project strength and unity, and it’s chaos right now up in Ottawa,” Ontario Premier Doug Ford (NYSE:F) said after a scheduled online conference call of provincial premiers on Monday to discuss the U.S. threat.An unimpressed Alberta premier, Danielle Smith, one of Trudeau’s biggest domestic critics, said the provincial leaders had only learned halfway through their call that the point person on Canada-U.S. relations had quit.”It’s chaos. I’d be looking at this wondering who the next leader is … are they going to be able to bring forward a coherent plan? Is there going to be a team that is able to do a Team Canada approach?” she said.”It’s not the greatest time to have a vacuum,” she added, calling for a national election to help restore stability.Unhappy legislators from the ruling Liberal Party, some of whom have been calling on Trudeau to quit for months, met on Monday in Ottawa to vent their frustration.The Liberals are trailing badly in the polls ahead of an election that must be held by late October 2025. Trudeau has until now ruled out the idea of resigning but if pressure on him mounts significantly, the results could be unpredictable.”Trump will be inaugurated in 34 days. Canada must have a stable government,” former Trudeau foreign policy advisor Roland Paris said in a post on X.When Trump came to power in 2017 he vowed to tear up the trilateral free trade treaty with Canada and Mexico. Freeland, who was then foreign minister, played a large role in helping renegotiate the pact and saving Canada’s economy, which is heavily reliant on the United States.Vincent Rigby, a former national security and intelligence adviser to Trudeau, said Freeland’s departure meant the Canadian stance with Trump was up in the air.”This is going to be quite problematic for the prime minister from a political perspective, but it’s now also going to be problematic in terms of how the Canadian government deals with an incoming Trump presidency,” he said on the sidelines of an event in Washington.The role of chief federal coordinator on U.S. relations now passes to Dominic LeBlanc, the new finance minister, who flew with Trudeau to Florida late last month to meet Trump.”The one thing I think the American administration will respect is a government that’s focused on our common priorities, on the shared issues,” he told reporters after being appointed.Freeland was not invited along. Trump, who made it clear during trade talks in September 2018 that he did not like Freeland, cheered her departure late Monday.”Her behavior was totally toxic, and not at all conducive to making deals which are good for the very unhappy citizens of Canada. She will not be missed!!!” he wrote on his social media platform. More