Bonds see end of QE – and faint

The bond markets took a battering last month as a spike in global bond yields triggered heavy losses for fixed-income-invested mutual funds.

The bond markets took a battering last month. A spike in global bond yields (bond prices fall when yields rise) "triggered heavy losses" for fixed-income-invested mutual funds, say Dan McCrum and Lucy Warwick-Ching in the FT. Every one of the most popular class of US mutual-bond-investing funds lost money in May as investors started to fret about the end of quantitative easing (QE). Figures from Lipper show UK bond-fund losses averaged 1.23%, with some funds losing 2.74%, according to Brian Dennehy of FundExpert, quoted in the FT.

The rise in yields has come as investors anticipate the end of the US Federal Reserve's $85bn-a-month QE programme. Fed chairman Ben Bernanke revealed last month that bond purchases aimed at keeping interest rates low may be reduced, depending on how good US economic data are. "This could have far-reaching consequences for the US debt markets," notes McCrum. Rising yields also sparked a US stockmarket sell-off late last week, says The Wall Street Journal, with stocks that benefit most from low interest rates, such as telecoms, utilities and real-estate investment trusts, taking the brunt.

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