Breaking News
Investing Pro 0
Free Webinar - Crude Oil Trading 2023 | Thursday, February 9, 2023 | 01:00PM PST Enroll Now

Weekly Comic - Bond Market Turmoil Spooks Investors

Economy Oct 25, 2022 07:53AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Investing.com
 
US2YT=X
-0.46%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US10Y...
-1.37%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Scott Kanowsky

Investing.com -- Investors in global bond markets in the developed world are, by all appearances, on edge these days.

Yields on sovereign debt have soared to their highest levels in years, spurred on by many central banks around the world, looking determined to continue tightening monetary policy to quell soaring inflation, even if it may weigh on broader economic growth.

The 10-year U.S. Treasury bond, a crucial benchmark, has seen its yield comfortably top 4% after it started the year at around 1.5%. Meanwhile, the yield on its 2-year counterpart has ballooned even higher, a development that historically suggests a recession is looming in the world's largest economy. Prices typically fall as yields rise.

Researchers at the BlackRock Investment Institute are clearly biting their fingernails: A study last week said darkly that normally safe-haven government bonds may not offer much protection should central banks continue hiking borrowing costs to cool down red-hot inflation.

Meanwhile, from Wall Street to Washington D.C., concerns over liquidity are heaping additional strain on already stressed U.S. Treasuries - a crucial cog in the engine of the global economy.

A measure of market liquidity from JPMorgan recently dropped to its lowest level since the early days of the pandemic in March 2020. A Bloomberg index shows investors are now finding it the most difficult to get deals done in the Treasury market in about two and a half years.

Driving these jitters is the Federal Reserve, which has laid out plans to scale back its huge $9 trillion balance sheet. The Fed hopes that by rolling back this bond buying - and thereby reversing much of a program partly designed to help prop up banks during the initial economic fallout from the COVID-19 crisis - it can take some more steam out of price growth.

But the consequences of this decision are still far from certain.

In September, a strategist at Bank of America flagged that the Fed rapidly pulling liquidity out of the Treasury market represents "one of the greatest threats to global financial stability today, potentially worse than the housing bubble of 2004 - 2007."

Even U.S. Treasury Secretary Janet Yellen has warned that she is "worried" about maintaining adequate liquidity in bond markets. In November, U.S. regulators will debate possible changes in the structure of the Treasuries market to try to address potential systemic issues.

This is for good reason, as Rishi Sunak's sudden rise to power in the United Kingdom has shown. His predecessor as prime minister, Liz Truss, found herself without the support of her party following the release of a disastrous "mini-Budget" filled with unfunded tax cuts that sent British government bond yields, known as Gilts, spiking.

These gyrations, along with signs of sputtering in pension funds, led the Bank of England to shore up U.K. debt markets through £5 billion in temporary debt purchases. Truss's premiership is now over, but not before the chaos also impacted bond markets in the U.S. and Europe.

Policymakers at the European Central Bank will meet on Thursday, with the Frankfurt-based institution expected to reveal more details about its rate hike path and, potentially, its own pullback on bond buying.

Earlier this week, Eurozone borrowing costs dropped on a report that the Fed could begin to slow its pace of policy tightening. Investors are hoping the ECB may follow suit.

But the worries persist, echoing a sentiment attributed to American political strategist James Carville: "I used to think that if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody."

It remains to be seen whether the recent bond market turmoil of the past few weeks may just prove him right.

Weekly Comic - Bond Market Turmoil Spooks Investors
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email