This Year's Bond Shortfall Seen Hitting $460 Billion

Mismatch between supply and demand boosts bond returns.

The supply of bonds worldwide will fall $460 billion short of demand this year, underpinning support that confounded forecasters and sent the fixed-income market to its best start to a year since 2003.

Debt issued by sovereign, corporate and other borrowers will decline by $600 billion to a net $1.8 trillion in 2014, as demand reaches $2.26 trillion, according to New York-based JPMorgan Chase & Co., the world’s biggest corporate bond underwriter. Demand has pushed down average bond yields to levels unseen since May 2013 as economies slow, borrowing is reduced and central banks signal no rush to start raising interest rates anytime soon.

Defying Predictions

U.S. pension funds and insurance companies together purchased $46 billion of bonds in the first quarter, just below the average quarterly pace of 2013, JPMorgan said. Their purchases helped to narrow the gap between the yields on U.S. 10-year notes and 30-year bonds, known as the yield curve, the bank said in the report.

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