We Are In The Greatest Treasury Bear Market of All Time, Oct. 20, 2023

 

Monday October 9, 2023 

Treasury debt losses over the past three years have amounted to the worst bear market in the nearly 250-year history of the U.S., according to Bank of America’s Michael Hartnett, who included some charts on Treasury performance in his latest “flow show” note shared with MarketWatch late last week.

According to one of these charts, Treasurys had lost nearly 25% on a total return basis between the market’s peak in July 2020 and Halloween 2022, with the market essentially unchanged in the interim.

 

Over the past week, yields on long-duration Treasury securities like the 10-year note BX:TMUBMUSD10Y and 30-year bond BX:TMUBMUSD30Y have touched their highest levels in more than 16 years, according to FactSet data.

Yields have been marching higher most of the year which has helped heap pressure on U.S. stocks. The run-up in long-bond yields accelerated after the Federal Reserve signaled in September that it expected to keep its policy interest rate higher for longer than investors had previously expected.

“It’s the greatest bond bear market of all time,” said Michael Hartnett, the BofA strategist who authored the note. He pointed out that losses on some 30-year bonds have topped 50%, as MarketWatch has reported.

The latest leg of the bond-market selloff has been particularly painful for investors as bonds and stocks have fallen in tandem, as they did in 2022, leading to losses in portfolios with exposure to both.

However, investors worried about more bond-market pain to come may find solace in signs that the selloff is starting to look overdone. According to a BofA analysis, Treasury prices are looking overstretched relative to their 200-day moving average.

Bank of America’s hold-to-maturity bond book is seeing huge paper losses amid the selloff, according to analysts’ comments and a recent report by Bloomberg News, which blamed the banks’ long-dated Treasury and mortgage-bond holdings for dragging on profit.

On Monday, Dallas Fed President Lorie Logan said rising Treasury yields could diminish the need for further interest-rate hikes, which could help support bond prices, since concerns about the Fed’s hiking plans have been front and center for bond markets.