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J.P. Morgan forecasts $700bn contraction in global bond demand

There will be a $700 billion contraction in global bond demand next year compared to 2022, while bond supply will likely drop by $1.6 trillion, J.P. Morgan strategists, led by Nikolaos Panigirtzoglou, estimated in a note released over the weekend.

According to Reuters, the bankers also predicted that global bond yields will likely fall slightly in 2023 as the balance between demand and supply will improve by $1 trillion.

“Based on the historical relationship between annual changes in excess supply and the Global Aggregate bond index yield, a $1 trillion improvement in the demand/supply balance would imply downward pressure on Global Aggregate yields of around 40 basis points,” the Wall Street bank said.

J.P. Morgan said that while major central banks trimming their balance sheets in 2022 was the single largest contributor to deterioration in bond demand, sell-offs by commercial banks and retail investors were also much higher than estimates. This year was one of the worst for bonds in history.

While short-dated U.S. Treasury losses were limited to less than 10 per cent, the 23 per cent drop in annual returns of the 10-year U.S. Treasuries through last month was – according to Bank of America – the worst since the turbulent infancy of 1788.

New Telegraph reports that the Director General of the Debt Management Office (DMO), Patience Oniha, last week told the House of Representatives Committee on aid loans and debt management that the international capital market had closed its doors to Nigeria, making it impossible for the country to borrow money from the eurobond market to fund government projects.

She noted that the Federal Government could have raised money for the budget if their challenge did not exist. The DMO boss said: “The reality is that if it was before, by now, we would have issued eurobonds to raise the money. But from the fourth quarter of last year, the international capital market has not been opened to countries like Nigeria. “In 2021, there was N6 billion to be raised but we raised N4 billion out of that.

 

This year, we raised N1.25 billion. That was the only day the International capital market was opened. “Since January this year, countries with our rating, the international market are not looking for us because the invasion of Ukraine by Russia turned things around the world significantly.

“So, inflation rates are high, interest rates are high and investors are saying there is a lot of uncertainty, there is threat of recession. So, what they have decided to do is to put their money in the G7 nations

 

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