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Fasdal: What's next for the bond market

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High yield and emerging market bonds were hit badly on Monday following the equity rout brought on by China. But unlike previous years, core bonds such as German bunds, barely moved. Saxo's Simon Fasdal explains that markets would expect to see some panic buying in higher rated longer bonds and that didn't happen.

Simon says one explanation is that big funds are losing the hedging ability of these core bonds. This forces them to sell equities immediately.

He expects more volatility in the next few days but he also believes that the large funds have sold what they had to and so could start buying again. This would help stabilise high yield and emerging market bonds in the coming days, Simon says. But he expects investors to be cautious for now.