Bond Market: Why Has Thou Forsaken Us
Let's take a quick look at a few rates and then consider the overall fixed income market (through 6/21/2022):s
2 Year: 3.21%
10 Year: 3.31%
20 Year: 3.63%
30 Year: 3.39%
There is some inversion going on here domestically. Not good! What was it said about the bond market and resurrection?
Now let us look at some global 10 year rates (6/22/2022):
US 10 Year: 3.160%
UK 10 Year: 2.488%
GMN 10 Year: 1.626%
JPN 10 Year: 0.238%
FR 10 Year 2.166%
Graph below through May 2022:
2022 has started out as one of the worst performance years in the last 35+ years across all asset classes:
The AGG has only had 4 negative calendar years since inception in 1976:
Since 1989, the yield-to-worst has dropped from 9.5% down to 3.9%, while the duration has increased from 4.6% to 6.5%.
We saw similar, tremendous carnage in March 2020 in terms of performance, especially in terms of high yield securities. But check out what is going on in terms of bond flows:
A recession will hit corporate credit pretty hard. But fixed income vehicles will be on the hunt for where to park money sometime. 1Month LIBOR is up 150bps since the start of the year. That is impacting coupons. As money comes back into the market, it will come back first to the cheapest asset class with the best collateral.
How will this play out? We have time...perhaps a LOT of time.