Why are yields jumping higher and higher?

Roni Green from GF Asset Management provides insight into the current trends in financial markets. He foresees considerable interest and activity in Exchange Traded Funds (ETFs) and the bond market in early 2024, pointing out the increase in yield rates which haven't been this high in 15 years, attracting many to capitalise on the liquid yield.

Roni highlights the popularity of ETFs as an accessible route for retail investors to delve into the bond market, given that $10 billion of inflows into the bond market last week saw around half moving into ETFs.

He continues by exploring the prospects for 2024 and beyond, suggesting the possibility of an "equity-like" year of returns in the bond market. According to Roni, this potentiality stems from the premise that with rates around 4.5 to 5%, there's room for achieving 8 to 10% returns in the bond market.

He explains his optimism cautiously hints at an economic slowdown and inflation moving towards targets, which could result in some term rates behaving more conservatively towards the end of the year.

Roni also discusses his views on current macroeconomic conditions and potential adjustments in central bank strategies. He believes the market has likely overestimated Federal Reserve rate cuts, and suggests these might only start to happen around mid-year.

Roni also mentions the attractive yields from fixed rate bonds garnering attention from buyers, and the potential for further rate cuts from the Reserve Bank of Australia later in the year as the economy grapples with high interest rates. Lastly, he advises some caution in the credit markets due to apparent tight credit spreads.