The Worst Bear Market in History for Treasury Bonds
Treasury bonds have experienced their most severe bear market in the history of the U.S., lasting for almost 250 years. This startling revelation comes from Michael Hartnett, a strategist at Bank of America. In his recent "flow show" note, Hartnett included charts depicting the performance of Treasury bonds, illustrating the extent of the losses.
According to one of the charts, Treasury bonds suffered a substantial drop of nearly 25% in total return between the market's peak in July 2020 and Halloween 2022. Surprisingly, the market remained relatively stagnant during this period.
In the past week, long-duration Treasury securities, such as the 10-year note (BX:TMUBMUSD10Y) and 30-year bond (BX:TMUBMUSD30Y), have reached their highest yields in over 16 years, according to FactSet data. It's important to note that bond yields move inversely to prices.
These rising yields have placed considerable pressure on U.S. stocks, with their upward trajectory commencing since late July. The momentum further increased after the Federal Reserve indicated in September its intention to maintain higher yields for a longer duration than initially anticipated by investors.
The continuous downward trend and significant losses in Treasury bonds underline the historic magnitude of this bear market. Investors and analysts continue to monitor this situation closely for any potential implications on the broader financial landscape.
Bond Sell-off Causes Pain for Investors
The recent bond-market sell-off has been a source of great distress for investors, as both bond and stock prices have declined simultaneously. This situation is reminiscent of what happened in 2022, resulting in significant losses for portfolios that had exposure to both asset classes.
However, there is some reassuring news for investors who fear further pain in the bond market. An analysis by Bank of America suggests that Treasury prices may have gone too far down, relative to their 200-day moving average.
Bank of America's hold-to-maturity bond book has suffered sizable paper losses during this sell-off. Bloomberg News recently reported that the bank's long-dated Treasury and mortgage-bond holdings have been a drag on its profits.
While Treasury trading was closed on Monday due to a bank holiday in the U.S., futures contracts tied to Treasury bonds saw an increase. This rise came as concerns about escalating geopolitical risk grew, following Hamas's incursion into southern Israel over the weekend. The iShares 20+ Year Treasury Bond ETF TLT also experienced a gain, closing up 1.3% at $85.86 per share.
On Monday, Dallas Fed President Lorie Logan commented that rising Treasury yields could potentially reduce the need for further interest-rate hikes. This development could lend support to bond prices, which have been particularly sensitive to the Federal Reserve's intentions regarding rate hikes.
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