21.05.2024
Bond investors seem to be ignoring some risks
There is growing demand for bonds on the markets, which causes prices to rise and yields to fall. This dynamic, however, may be accompanied by a certain underestimation of risks by investors. Spread between corporate bonds and risk-free bonds falls The spread between corporate bonds and so-called risk-free (i.e. low-risk) government bonds has narrowed recently. The reason is that demand is driving up prices and lowering yields, which are therefore closer to those of government bonds of very solid countries such as Germany or the US (such as US treasuries). On ‘Affari&Finanza’ (‘La Repubblica’), Vittoria Puledda points out that this phenomenon can be seen in two different ways, one more optimistic, the other more pessimistic. Strengths and weaknesses of the bond market today On the one hand, the prospect of an interest rate cut makes it attractive to subscribe to bonds today that distribute high coupons on average: in a context of an interest rate cut, ne ...