Yes you can lose a lot of money with bonds...
The Pimco 25+ Year Zero Coupon US Treasury ETF is off more than 60% from its high
If US Treasuries would the stock market, the current drawdown for long for the stock market in history
Source: Michael Gayed
US 10 year yields keep rising in tandem with oil
WTI oil now trades at $93.5/bbl. So is oil & inflation fears the only reason for bond yields to move upward? Probably not. The fact that real yields are also on the rise shows that inflation is not the only culprit. Investors are adjusting to the reality of rates staying high for longer than expected. They are also requesting positive real yield to get compensated for being invested in US treasuries at the time the US Treasury is issuing massive amount of debt while the FED keeps shrinking its balance sheet through QT. Source chart: Bloomberg
US HY: watch out for take-off!
The disparity between cash and synthetic in High Yield (HY) has recently hit levels not witnessed since October 2022. While HY credit spreads in the cash bond market appear more resilient in response to the rapid increase in real rates, the CDX HY index, comprised of 5-year CDS of HY companies, has expanded by over 60 bps in just two weeks. The question now is, how long will this disconnect between the two markets persist? Source: Bloomberg #HighYield #CreditMarkets #Finance #Investing
Apollo just said that bonds are now more attractive than equities...
The spread between corporate bond yields and the S&P 500 earnings yield just hit its highest since 2008, at 1.5%. This spread was negative for nearly 13 years before turning positive in mid-2022. Even in 2020 this spread did not turn positive amidst the global lockdowns. Source: The Kobeissi Letter, Apollo
This chart by Goldman shows the regime change which has been in place over the last few weeks
Despite the rise in 30-year real yields, short duration stocks (i.e value and the likes) were underperforming long duration ones (i.e IT/growth stocks). Things are now normalizing as short duration stocks are progressively catching up in terms of relative performance. The growth/IT basket probably needs 30-year real yield to reverse trend in order to outperform again...
TIPS - A Revival in Focus!
Long-term U.S. Treasury Inflation Protection Securities (TIPS) have witnessed a significant double-digit decline since the start of 2022, despite the presence of high U.S. inflation. While the inflation-linked component has acted as a safety net, providing a cushion of around 10% over 20 months, the surge in the 10-year real rate from -1.0% to 2.2% over the same period has had a marked and negative impact on the total TIPS yield (-14%). Yet, the question lingers: Is now the opportune moment to contemplate TIPS? We are currently at a level of LT real rates (2.23%) not seen since 2008. Interestingly, TIPS exhibit a lower beta compared to U.S. Treasuries (currently standing at 0.8). This attribute becomes especially valuable in light of the considerable volatility in U.S. interest rates (with the MOVE index still >100). hould we delve into the realm of inflation-linked bonds, which constitute a global market valued at over $3.5 trillion? This consideration gains significance as uncertainties surrounding inflation persist, driven by factors like de-globalization, supply shocks, increased fiscal spending, and the ongoing transition to renewable energy sources. Source: Bloomberg
Markets summarized in one chart: Yields up, USD up and Equities down
Source: Game of Trades
