Global investors continue dumping bonds

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Kimberly Adams (0:31)

Global investors continue dumping bonds and leaving the labor force to take a chance on a better future.

From Marketplace in Washington, I'm Kimberly Adams. Bond markets in the US are closed today for the Labor Day holiday, but we're continuing to track the global bond sell-off. For more, let's bring in Jane Foley, head of foreign exchange strategy at Rabobank in London. Jane, welcome.

Jane Foley (0:55)

Thank you for having me.

Kimberly Adams (0:56)

Is sell-off really the right word for what's been happening globally with bonds lately?

Jane Foley (1:03)

I think that very much depends on your perspective. What sell-off I think can give us a little bit perhaps of a wrong idea, because if we step back and maybe look at bond deals over the last few decades, you may then begin to think, well, look, surely bond deals are just normalizing. They're more akin to levels that we might have been familiar with before the global financial crisis, for instance. Why have they been selling off? I suppose this is the factor. There are those normal reasons, higher inflation, shortening supply chains. There's a war on energy prices have gone up. Then of course, we have a lot of debt for a lot of governments. What we've had in the years following the global financial crisis was a situation where the central banks were buying these bonds. That allowed yields to be, if you like, artificially depressed. That is no longer the situation. Many of those central banks have reversed that.

They've been lending their balance sheets for, and that really has exposed those bond buyers out in the market to perhaps more supply than they would have anticipated. At the same time, these higher inflation costs as well.

Kimberly Adams (2:19)

Whether you call it a sell-off or a normalization, do you think what we're seeing in the bond market is going to be continuing in the short term?

Jane Foley (2:28)

What we are seeing right now is, yes, we've got elevated crude oil prices, but what perhaps is hitting the headlines, or beginning to hit the headlines more, is the impact of this on refined products. So diesel, for instance. And when we think about diesel, well, we think about hauliers, carting groceries and other goods around the country. But we also must think of farmers, for instance, and factories. And that means as diesel prices go up, well, potentially the cost of all of these goods can go up too. So that's going to have a trickle down effect over the next few months to us all. And that is something that bond yields are going to be quite sensitive to. So there's a lot up in the air here, which is very difficult to answer in terms of when that war ends and when the pressure comes off, not just crude, but refined products as well.

Kimberly Adams (3:27)

Jane Foley is head of foreign exchange strategy at Rabobank in London. Jane, thank you so much.

Jane Foley (3:33)

Thank you.

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Kimberly Adams (4:55)

The labor force participation rate, that's the share of people who could have jobs that are either working or looking for work, went up slightly last month. But it's down about half a percent since the beginning of the year. People leave the labor force for all kinds of reasons, retirement, disability, caretaking responsibilities, and school.