Global Bonds Slump to a Discount for the First Time in 4 Years

Global bonds dropped below a key fixed-income watermark after Federal Reserve Governor Lael Brainard signalled a quicker-than-expected rundown of the central bank’s debt holdings.

The Bloomberg Global Aggregate Index fell below a measure of so-called par value Tuesday, with its price falling to 99.9 — under the key 100 level at which bonds are often sold to investors. It’s the first time since 2008 that the gauge has traded at a discount to face value.

This year, global investors have fled the bond market as skyrocketing inflation forced many central banks to accelerate rate hike plans to cap rising prices. The index — which contains government and corporate debt — has fallen 7.4% so far this year — a drop in market value of some $4.6 trillion, according to data compiled by Bloomberg.

Brainard called the task of reducing inflation pressures “paramount” and said the Fed will raise interest rates steady while starting balance sheet reduction as soon as next month.

Treasuries extended a slump to Wednesday, pushing the benchmark 10-year yield past 2.6% to the highest since 2019.

Read also; Global Markets Update.

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