The ten-year US bond is up more than 3.8% today, marking a 2011 high. In a short space of only two years, when we talk about debt, T-Note is in the third biggest bear market in its history. To observe an adjustment of this magnitude you have to go back to the start of World War I and the Marshall Plan. The big difference is that the previous period lasted for decades and decades.
“Big debt crises often end in disaster,” Bank of America’s strategy team warns this week. Analysts say the ten-year US bond is going through the third-largest bear market in its history, and it is said to be too soon. between the above 1899 and 1920, at the end of World War I, with the signing of the Treaty of Versailles You Between 1946 and 1981, Large bond market adjustments tend to last for decades, but are currently only a matter of years. Started in August 2020,
Bonds work just like equities. They are listed on the market and their price is determined by the investors as they buy and sell. Ten-year bonds in portfolio lose more than 15%, worst practice since 1949, when America launched the Marshall Plan to rebuild Europe. However, the most interesting aspect is the performance they offer, which increases when the price drops.
US bond sales have been on the block since August. But this does not happen only in US debt. According to Bank of America calculations, interest on T-notes has increased by 110 basis points. German bonds rose 87 basis points, the fastest rally in rates since 1990. Something similar happens in French loans. Experts have warned that with the bond market falling, the stock market is prone to large-scale liquidation and liquidity problems in the market. “True surrender is when you have to sell the things you love,” he remarks ironically, referring to the collapse of bonds.
And today we have an example with the United Kingdom. British 2-year bonds have risen 40 basis points, 10-year bonds have risen 8% to yield 3.78%, and 30-year bonds have risen to a 2011 high of 4%. This is because of the tax reduction that Liz Truss’s government introduced today. As a bonus, the pound has fallen to a 37-year low against the dollar.
“The new era of deficits, involves more geopolitical risk, more military spending and there is always inflation,” the firm recalled in its analysis of the US Treasury with the current situation. The rally in US bond yields is dragging the rest of the country down and is due to the Fed’s tightening of monetary policy to try to tame inflation.
The Federal Reserve executed its third consecutive 75 basis point increase. As per the possibilities provided by CME’s watchfed tool, 67% chance there will be a fourth increase of 75 basis points at the next meeting on November 2compared to 32% for a 50 point increase.
The Fed’s directors’ forecast for the next years, the so-called dot plot, tightened at the end of the year, keeping rates between 4 and 4.25% at the end of the year. In the previous quote, the official estimate put the value of money between 3.5% and 3.75%. For the two conferences the Fed has skipped this year, market expectations are adjusting to this new scenario. For the December 14 meeting, they also anticipate a further increase of 75 basis points to leave the value of money between 4.25% and 4.5%.
“I suspect the bond bull market that began in the mid-1980s is coming to an end,” said GSFM manager Stephen Miller. And he says yields aren’t going to go back to historical lows seen before and during the pandemic.” Ultimately, it’s the Federal Reserve that shifts interests in fixed income and has no interest in sending US bonds down. 1%, with current inflation, the high inflation the world is now facing means that central banks will be unwilling to resume the kind of extreme stimulus that pushed Treasury yields below 1% Helped to send, he said.
According to JPMorgan Chase, the fastest rate hike since the 1980s has eroded market liquidity. ,The bond and money markets have seen a more severe and persistent decline in liquidity positions this year than other asset classes, with little sign of a reversal.“, wrote Nikolaos Panigirtzoglu’s strategists in London. “We are at peak levels.”