Recession Risk Still in Play for Bond Bulls

Inflation is continues its stay in the current macroeconomic environment. As such, the threat of a recession still looms, which could be a boon for bullish bond investors.

The higher-for-longer interest rate narrative could feed into ongoing risks of a recession as economic growth is stifled. This is due to increased borrowing costs. In the meantime, yields are climbing, which is a plus for fixed income seekers.

“A mix of soaring yields and recession risk is setting up investors for an era of ‘extremely attractive’ fixed-income returns, according to Pacific Investment Management Co,” reported Bloomberg. “The outlook is particularly bright for high-quality bonds over the next six to 12 months as inflation cools and growth takes a hit from the delayed effects of monetary policy in major economies.”

While rising yields won’t do any favors for bullish bond investors, an aforementioned potential of a recession could certainly spur a flight to safe haven assets like bonds. Given that scenario, bond prices are in an area of value for investors who are looking to take advantage of the depressed values and pad their portfolios with bonds in case a recession does hit.

“We’re probably going to go into a recession sometime in the first quarter of next year, probably because the bond market, simply through supply and demand, is going to deliver more rate hikes because we don’t have a clearing price yet for long-term debt,” said hedge fund billionaire Paul Tudor Jones. “And so, those rate hikes are probably going to tip us into recession.”