How did fixed income perform in Q1?



Invesco has examined the performance of fixed income in the first quarter of 2024 as “central bank speak” caused confusion in markets.
The fund manager reflected on the three months to 31 March and said the asset class, based on the Bank of America Merrill Lynch Global Bond Index, saw a disappointing quarter as a result of central bank actions.
The only exception was emerging market bonds which outperformed their developed market counterpart.
However, global bonds saw improved performance in the month of March.
It also noted the asset class saw a volatile quarter as a result of large swings experienced by the 10-year US Treasury yield which moved between 4 per cent and 4.3 per cent during the period.
Kristina Hooper, chief global market strategist at Invesco, said: “We saw market swings along the way as central bank speak caused confusion. So what happened? In short, this was overall a risk-on quarter as markets largely overlooked disappointing data and hawkish talk from central bankers, despite some initial negative reactions.
“Markets are discounting what they anticipate will happen this year – that disinflation in Western developed economies will continue and that their central banks will start cutting rates. Markets are also discounting a soft and brief slowdown for the global economy, followed by a re-acceleration.”
The asset manager also noted it expects to see major central banks embark on a cycle of rate cuts after several months of rate rises.
In the US specifically, Federal Reserve chairman Jay Powell indicated inflation is falling in line with the central bank’s expectations towards 2 per cent, which he said is “more along the lines of what we want to see”.
It is a similar story in the UK where median inflation expectations for the next 12 months have fallen from 3.3 per cent to 3 per cent, closer to the Bank of England’s target.
“All this suggests that rate cuts could begin for some of the major Western developed central banks by the end of the second quarter,” Hooper concluded.
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