Bloomberg News reports that the last 12 months have been quite troublesome for bond investors across the globe, which witness a plunge into a bear market that is quite rare. However, it appears that there might be some relief soon.
Loss in double digits has become the norm for investors with double digits in the current year 2022, regardless of whether it is in terms of duration of the bond, debt type, pr industry of issuer. It is anticipated that more declines are impending as the central bank continues its effort to tame inflation which is the highest in a decade.
Pauline Chrystal, who is a portfolio manager associated with Kapstream Capital, Sydney, said there is still some trouble to come in the future. Pauline also stated that the Fed had been committed to prioritizing inflation instead of concerns related to inflation. Check out how losses are spread across different debt classes.
Losses Across Different Debt Classes
Compared to corporate bonds and securitized debt securities since the beginning of 2021, the Treasuries have not been performing well but worse. The US government bonds have been under pressure since it tightened its policies, which is the tightest since the 1980s. Also, it has continued to resolve the rates so that inflation could be brought back to 2%.
Negative Impact
The worst hit has been government debt, given a considerable portion of the market that offered negative yields just one year back. Then, the notes stockpile with the sub-zero yields surpassing $15 trillion with the investors shelling out for holding the 10-year German and Japanese bonds and Italian securities.
Compounding Pain
Across most sectors in 2022, the losses have surfaced to the top of the ones that had racked up in the past year. The energy-related bonds experienced the smallest plunge at the time of the slump.
The Worst Was in Europe
Bonds in the denominations of the European currencies have performed badly in 2022. This was revealed following the energy crunch of the continent, which has spiked the odds of an impending recession, as reported by Bloomberg News. The larger swings in the currency markets, influenced by the inflation highest in decades in several countries, have witnessed compounded losses for investors tracking the dollar portfolios.
Shorter Duration Bonds are Not Spared
It was observed that the bonds for a shorter duration are not spared. Although, the year-to-date losses amounting to about 10% are below the 30% plunge for the notes with maturity dates beyond ten years.
The increase in borrowing costs globally was whipsawing the debt markets, with volatility surging to levels last observed in July 2020. With the central banks still awaiting to declare victory in the battle against inflation, it is being apprehended that shortly bond investors might have to equip themselves for more turmoil ahead.
