Higher rates mean "bonds are coming back," says JPMorgan's Michele

(Bloomberg) — Investors are finding value in bonds for the first time in a decade as higher interest rates make fixed-income stocks attractive, according to JPMorgan Chase & Co.’s Bob Michele.

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The yield on the benchmark Bloomberg Aggregate Index jumped to 4.7% from 1.75% at the end of 2021 as the Federal Reserve embarked on an aggressive course of raising interest rates to fight inflation. With the Fed showing signs of slowing rate hikes, investors can expect more stability in the market, Michele, chief investment officer for debt at $2.5 trillion asset manager JPMorgan, said Friday in “The Week of Wall Street” on Bloomberg Television.

“Every wealth management platform at JPMorgan, every institutional client — they come to us, they put money into bonds,” Michele told host David Westin. “Bonds are back.”

Stocks barely moved on the week, with the S&P 500 losing less than 1%, down 17% so far in 2022. Bond yields rose with the 2-year Treasury note ending the week at 4.5329%, and the 10- annual Treasuries at 3.8288%, an inverted yield curve that often signals a coming recession.

One ray of hope that makes a recession less likely is the outcome of the midterm elections, with Republicans taking control of the U.S. House of Representatives while Democrats hold the Senate, a situation that is likely to limit major policy changes in Washington, Michele said.

“When there are dramatic changes in policy, you have to reassess everything in the markets and it becomes destabilizing,” he said. “If we know we’re going to have congestion, we can focus on reducing inflation and try to avoid a recession and have a soft landing.”

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