(Bloomberg) — Week by week, the bond-market crash just keeps getting worse and there’s no clear end in sight.
Most Read from Bloomberg
With central banks worldwide aggressively ratcheting up interest rates in the face of stubbornly high inflation, prices are tumbling as traders race to catch up. And with that has come a grim parade of superlatives on how bad it has become.
On Friday, the UK’s five-year bonds tumbled by the most since at least 1992 after the government rolled out a massive tax-cut plan that may only strengthen the Bank of England’s hand. Two-year US Treasuries are in the middle of the the longest losing streak since at least 1976, dropping for 12 straight days. Worldwide, Bank of America Corp. strategists said government bond markets are on course for the worst year since 1949, when Europe was rebuilding from the ruins of World War Two.
The escalating losses reflect how far the Federal Reserve and other central banks have shifted away from the monetary policies of the pandemic, when they held rates near zero to keep their economies going. The reversal has exerted a major drag on everything from stock prices to oil as investors brace for an economic slowdown.
“Bottom line, all those years of central bank interest-rate suppression — poof, gone,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “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.”
The latest leg downward was fueled by the Fed meeting Wednesday, when the central bank raised its policy-rate range to 3% to 3.25%, its third straight 75-basis-point hike. Policy makers indicated they expect to push the rate beyond 4.5% and keep it there, even if it exacts a large toll on the economy.
Underscoring that point, Fed Chair Jerome Powell said the bank “is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done.” The broad inflation gauge that the Fed targets, the personal consumption expenditures price index, is expected to show a 6% annual increase in August when it’s released on Sept. 30.
The scale of the expected interest-rate hikes will likely only deepen the Treasury market’s losses, since in previous monetary-policy tightening cycles yields have tended to crest near the Fed’s target rate.
For now, only policy-sensitive front-end Treasuries are trading at yields above 4%, with the five-year briefly breaching that mark on Friday. Longer-dated yields are lagging the rise as traders price in the risk of a recession. Still, the 10-year hit as much as 3.82% Friday, a 12-year high.
“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,” said Glen Capelo, managing director at Mischler Financial. “The 10-year yield is definitely going to get closer to 4%.”
In the coming week, the market may face fresh volatility from the release of the inflation data and public speaking engagements by Fed officials including Vice Chair Lael Brainard and New York Fed President John Williams. Also, the sale of new two-, five- and seven-year Treasuries will likely spur trading volatility in those benchmarks, since the market typically seeks a price concession before the auctions. The week will also mark the end of the month and the quarter, usually a time of diminished liquidity and elevated volatility as money managers adjust holdings.
A broad Treasury index has been swamped by escalating losses and is heading for a drop of over 2.7% in September, its worst since April. It’s down over 12% this year.
“Whether 4.6% is the peak rate or they have to go further depends on the inflation trend,” said Andrzej Skiba, head of the BlueBay US fixed-income team at RBC Global Asset Management, who is cautious about being exposed to longer-dated interest-rate risk. “The market is totally at the mercy of incoming inflation data, and while our view is that inflation will decline, the degree of confidence in that forecast is low.”
What to Watch
Sept. 26: Chicago Fed national activity index; Dallas Fed manufacturing index
Sept. 27: Durable goods orders; Conference Board consumer confidence; FHFA house price index; Richmond Fed manufacturing index; New home sales
Sept. 28: MBA mortgage applications; Pending home sales; wholesale and retail inventories
Sept. 29: Weekly jobless claims; 2Q GDP revision
Sept. 30: Personal income and spending (with PCE deflator); MNI Chicago PMI; University of Michigan sentiment, inflation expectations
Sept. 26: Boston Fed President Susan Collins; Cleveland Fed President Loretta Mester; Atlanta Fed President Raphael Bostic
Sept. 27: Chair Powell on digital currencies; San Francisco Fed President Mary Daly; Chicago Fed President Charles Evans
Sept. 28: Bostic, Evans
Sept. 29: Mester, Daly
Sept. 30: Vice Chair Brainard; New York Fed President Williams
Sept. 26: Two-year notes; 13- and 26-week bills
Sept. 27: Five-year notes
Sept. 28: Two-year floating-rate notes; seven-year notes
Sept. 29: 4- and 8-week bills
Most Read from Bloomberg Businessweek
(C)2022 Bloomberg L.P.
There are no reasons to be thankful for high inflation. However, unexpected — but not necessarily unfortunate — consequences of this year’s persistently high inflation rate will be…
Yes, there’s a lot of economic concerns, but this is a buying opportunity (and things aren’t nearly as bad as they seem).
AT&T (NYSE: T) and IBM (NYSE: IBM) both underwent dramatic transformations over the past year. AT&T divested DirecTV, merged WarnerMedia with Discovery to create Warner Bros. Discovery (NASDAQ: WBD) , and sold many of its non-core assets to prioritize the growth of its core telecom business.
Stephen Chazen, who rose to the top of Occidental Petroleum during a lengthy career and after his retirement started and ran a Texas shale-oil producer, has died aged 76 after an illness. Chazen was chief executive and chairman of Houston-based Magnolia Oil and Gas Corp, which he helped start in 2017 after leaving Occidental and ran until this week. Chazen, who early in his career was a finance executive, acquired shale properties and pledged to put cash flow above production.
LONDON (Reuters) -Global government bond losses are on course for the worst year since 1949 and investor sentiment has plummeted to its lowest since the financial crisis, BofA Global Research said in a note on Friday. Bond funds recorded outflows of $6.9 billion during the week to Wednesday, while $7.8 billion was removed from equity funds and investors plowed $30.3 billion into cash, BofA said in a research note citing EPFR data. Investor sentiment is the worst it has been since the 2008 global financial crash, the note said.
(Bloomberg) — An Idaho man who worked as an information technology professional admitted to making at least $3.5 million by illegally accessing the stock picks of the personal finance website Motley Fool before they were released.Most Read from BloombergBank of England Says Paper Banknotes Only Good for One More Week’Read Putin More Often and Carefully,’ Lavrov Tells the WorldThe Great Bond Bubble Is ‘Poof, Gone’ in Worst Year Since 1949UK Market Plunge Sparks Talk of Emergency BOE Rate HikeDav
It’s been a heckuva turbulent ride, including Russian defaults, emerging market crises, dot-com disasters, terrorist atrocities, global financial meltdowns, a U.S. housing collapse that rivaled the Great Depression, inflation panics, deflation panics, energy crises, sovereign debt crises, and a global pandemic. Read: What is a bear market? The people who panic and sell the stocks in their retirement portfolios right here will end up kicking themselves.
President Joe Biden challenged Democratic voters on Friday that if they elect at least two more senators in November elections, it would open the possibility of Democrats removing the filibuster and restoring federal abortion rights for women. At a Democratic National Committee rally, Biden suggested the two extra Democrats would allow the Democratic-controlled Senate to remove a legislative roadblock known as the filibuster that requires a 60-vote majority to overcome.
Liz Truss’s ?45bn tax cutting spree has set Britain on course for a bailout from the International Monetary Fund, a leading economist dubbed Dr Doom has warned, as fears grow that the pound could fall to parity with the dollar.
Sentiments among NFL team owners regarding Daniel Snyder’s ownership of the Washington Commanders have shifted significantly, as they await the findings of both a congressional investigation and a league-commissioned probe into allegations of misconduct by him and his team. Multiple owners said in recent days they believe serious consideration may be given to attempting to oust Snyder from the league’s ownership ranks, either by convincing him to sell his franchise or by voting to remove him. Al