Bloomberg predicts the worst bond market crash in over 70 years.
By Marica Micallef
At the end of September, while citing Bank of America[1] projections, Bloomberg reported that global government bonds are on track for their worst performance since 1949 as losses mount in the face of central banks.[2]
The escalating losses, according to the report, reflect how far the US Federal Reserve and other central banks have shifted away from the monetary policies of the Covid pandemic, when they held rates near zero to keep their economies afloat.
As investors brace for an economic slowdown, the reversal has impacted everything from stock prices to oil prices.
After the British government unveiled a massive tax-cut plan on Friday 26th September[3], the UK’s five-year bonds fell by the most since 1992. Two-year US Treasuries have fallen for 12 straight days, the longest losing streak since at least 1976.
“Bottom line, all those years of central bank interest-rate suppression – poof, gone,” Peter Boockvar, chief investment officer at Bleakley Advisory Group told the media outlet. “These bonds are trading like emerging market bonds, and the biggest financial bubble in the history of bubbles, that of sovereign bonds, continues to deflate,” he explained.
In the same period, the Fed raised its policy-rate range to 3.25% which is its third straight 75-basis-point hike, hinting further increases beyond 4.5%.
“With more Fed rate hiking coming and quantitative tightening, as well as the possibly more government debt issuance down the road amid less Treasury buyers out there now, it all just means higher rates,” managing director at Mischler Financial Glen Capelo said, adding: “The 10-year yield is definitely going to get closer to 4%.”
According to Bloomberg, the market could face new volatility in the first week of October due to the release of inflation data and public speaking engagements by Fed officials. It also reported that the sale of new two-, five-, and seven-year Treasuries will likely increase trading volatility in those benchmarks.
[1] https://www.bankofamerica.com/
[2] https://moneycentral.com.ng/markets/article/worst-bond-market-crash-in-over-70-years-coming-bloomberg/
[3] https://www.gov.uk/government/news/chancellor-announces-new-growth-plan-with-biggest-package-of-tax-cuts-in-generations