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By Jason Stipp and Jeremy Glaser | 06-04-2015 11:00 AM

Friday Five: Bond Market Volatility Is No Surprise

Rockiness in global bond markets is in the cards as central banks' extraordinary measures continue. Plus, value in the auto sector, deal news, and more.

Jason Stipp: I'm Jason Stipp for Morningstar. Welcome to the Friday Five--Morningstar's take on five stories in the market this week. Joining me for the Friday Five is Morningstar markets editor Jeremy Glaser.

Jeremy, thanks for being here.

Jeremy Glaser: You're welcome, Jason.

Stipp: Mario Draghi this week said that he was unfazed by bond market volatility. We certainly saw bond market volatility this week. What's your take on that comment?

Glaser: The ECB held their regular policy meeting this week and, as expected, they left rates unchanged. But the real news was in Draghi's press conference afterward. That's often where the real news from these meetings comes from.

Draghi said that the quantitative-easing program that they've embarked on is continuing to work; there are signs that inflation is picking up in the eurozone. They said that they're going to stick with this program until they really see that 2% inflation firmly take hold across the entire continent. So, he's clearly working on that and even said that he'd be open to even further measures, if necessary, to keep inflation up.

But he also talked a bit about how he expects there to be more volatility in the bond market. We've seen some pretty wild swings in the eurozone and elsewhere as yields got extremely low when the QE program was announced. And they have come up a little bit since then. We saw, again, a lot of volatility this week, and he says that that isn't a huge surprise, given that we are at this kind of zero bound. [He said] that we should expect that and that he's not going to be fazed. He isn't going to change policy because of it. He isn't going to try to smooth that out in any way.

I think, given that we do have a lot of these very unconventional and unusual monetary policies out in the market right now that we haven't seen before, that this is kind of uncharted territory we're in. It's difficult to know exactly how these bond markets are going to react. I think, from an investor standpoint, it's difficult enough to predict where fixed-income markets and equity markets that matter are going in the short term in any conditions. I think, particularly now, it's very difficult to make those short-term bets, and you really need to keep an eye on the longer term--thinking about why you have fixed-income exposure and not trying to time where yields are going to go tomorrow or going to go next month.

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