Bonds in $916 Billion Wipeout Spark Fear of Worst Run Since 1976

SilverDJ · Oct 9, 2018

https://www.bloomberg.com/news/arti...on-wipeout-spark-fear-of-worst-run-since-1976

Global bonds are hitting fresh milestones of misery.

Strong U.S. data, a tighter-than-expected monetary trajectory, rising commodity prices and brewing wage pressures are conspiring to push Treasury yields to cycle-highs, hitting money managers of all stripes.

The value of the Bloomberg Barclays Multiverse Index, which captures investment-grade and high-yield securities around the world, slumped by $916 billion last week, the most since the aftermath of Donald Trump’s election victory in November 2016.

American high-grade obligations are down 2.53 percent in 2018 -- a Bloomberg Barclays index tracking the debt has dropped in just three years since 1976.

“Bond investors have rarely seen losses like this over the past 40+ years,” Ben Carlson, director of institutional asset management at Ritholtz Wealth Management, wrote in a blog post. “Any further moves higher in rates could lead to the worst year since 1976 in terms of overall bond returns.”

The 10-year Treasury benchmark closed at 3.23 percent Friday, the highest since May 2011, while core European and Japanese bond prices have fallen as investors bet the era of ever-looser monetary policy is firmly over.

“Interest-rate risk hits all high-quality bonds,” said Ben Emons, chief economist at Intellectus Partners LLC. “Higher growth means higher nominal and real rates.”

Money managers continued to flee the iShares 20+ Year Treasury Bond ETF to the tune of $1.06 billion last week, the largest exodus since November 2017 and the most of any U.S.-listed fixed income passive fund. It sank 3.6 percent during the five days ended Oct. 5, the worst week in nearly two years.

Zero coupon, long-duration bonds are a noxious cocktail in an era of rising rates, and investors are voting with their feet. A Pimco version of the investing strategy is trading at its lowest since September 2014.

Talk of interest-rate lift-off in the euro area and signs that even Japan is tentatively tightening policy have helped drain the pool of negative-yielding global bonds.

The market value of obligations with below-zero yields now stands at $5.79 trillion -- the smallest since January 2016, one year into large-scale European quantitative easing and two months before the ECB increased monthly purchases and expanded the program to include corporate bonds.

Shelters are increasingly hard to find. The iShares TIPS Bond ETF, designed to protect against inflation, is down over 2 percent this year in total returns.

Underscoring fears held by some investors that rising borrowing costs will hit Corporate America, the riskier corners of the global trading landscape are also getting punished. A record $1.2 billion exited the iShares iBoxx High Yield Corporate Bond ETF on Friday, while its SPDR peer notched steady outflows last week.

There are saving graces. Spreads on junk obligations in the cash market, dubbed a lead indicator for the global business cycle, are close to cycle lows. Meanwhile, the compensation investors demand to hold longer-term Treasuries over shorter-dated maturities, the term premium, remains exceptionally low -- capping bearish pressure in U.S. government debt.

And there’s a glass half-full take: Income-starved portfolios are finally getting some relief after years of financial repression, with the opportunity to reinvest proceeds from shorter-dated debt into higher-yielding securities.

“Rates could always continue to go higher and cause more pain for bond investors but the best way to increase long-term expected returns in this space is to invest at higher yields,” Carlson, a contributor to Bloomberg Opinion, wrote in the post.
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Ipv6Ready · Oct 9, 2018

Rates are considered low until long term average is reached in the US. Bloomberg had nothing to write about that day.

Go back 20 years, 50 years, 100 years, 200 years and 1000 years, all would have been happy with 2%

SlyGuy · Oct 24, 2018

I don't think it's just the rates right now... it's overall returns that have been bad this year for bond owners.

When you combo low rates on 10 year treasury with rising Federal Reserve interest rates, that makes for the perfect storm that causes bad bond returns in both principal and the dividends. In my time investing, I haven't seen a year so bad for bonds (and I've always held at least 20% of my portfolio in bonds + dividend giants).

I still like to park money that I want for future stock buys into bonds and bond funds since they're pretty liquid. However, it sure isn't the 1980s or 1990s when 10 year treasury rates were 6% or even 10-12%. I barely see why anyone even bought stocks in the early 1980s... bonds were yielding over 10% with almost no risk, and a lot of mutual fund managers logically had US treasury as their top holding. Lol

...With everyone predicting a US market pullback, I guess that's the question right now: "When the going gets tough, the tough buy _____."
I would say it will probably be mostly the dividend giants for me... Kraft Foods, Nestle, 3M, AT&T, Johnson &Johnson, etc types. I would normally say mainly bonds and some dividend giants, but until the 10yr rate gets to 5% or more, I think it's the other way around for now?

Mintaka · Jan 2, 2019

What is the best website to get a list of U.S. Treasury bonds?

leo25 · Jan 2, 2019

Ipv6Ready said: ↑

Rates are considered low until long term average is reached in the US. Bloomberg had nothing to write about that day.

Go back 20 years, 50 years, 100 years, 200 years and 1000 years, all would have been happy with 2%
Click to expand...

I think it's clear that 2% is considered low, not sure how anyone can even question that. Pointless to look back more then 100 years ago.

alor · Jan 2, 2019

it just take a few guys in each city to buy gold and silver, there is nothing left in stores
3 months waiting time would come to visit

sgbuyer · Jan 2, 2019

alor said: ↑

it just take a few guys in each city to buy gold and silver, there is nothing left in stores
3 months waiting time would come to visit
Click to expand...

Sentiment for gold and silver in Singapore still very bad. There’s no rush for either although there had been some bargain buying in oct/nov.

alor · Jan 2, 2019

with the money from bonds, these people are more astute to investing money, so they are more likely to know about gold, even though the premium can put some of them off
but it actually take a very small number of them to move the coins/bars inventory, we would see out off stock more often by then.

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Bonds in $916 Billion Wipeout Spark Fear of Worst Run Since 1976

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