The bond market is crashing

Submitted by gjohnsit on Fri, 10/06/2023 - 5:31pm

A lot of people seem to be unaware that the bond market is twice as big as the stock market.
Which is why the recent bond market crash is so scary.

Longer-term bond prices have cratered in recent weeks, turning an already-rough period for the asset class into a rout that rivals some of the worst-ever US financial-market crashes.

Ten-year Treasury notes have plummeted 46% since March 2020, according to data from Bloomberg, while 30-year Treasurys are down 53% over the same period.

Stocks last suffered losses of that magnitude 15 years ago, when the collapse of Lehman Brothers and the 2008 financial crisis led to the benchmark S&P 500 index plunging 48% in the space of six months.

Screenshot 2023-10-06 at 15-18-10 These 4 charts show how the bond meltdown stacks up against some of the worst-ever stock-market crashes.png
To put this into perspective, this is even worse than the last bond bear market.

Compared with previous bond-market meltdowns, long-term Treasurys are seeing one of the most extreme undoings in history. The losses are over twice as big as those seen in 1981 when 10-year yields neared 16%.

Screenshot 2023-10-06 at 15-18-52 These 4 charts show how the bond meltdown stacks up against some of the worst-ever stock-market crashes.png

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Submitted by ggersh on Fri, 10/06/2023 - 6:07pm
ggersh's picture

trend for quite sometime though. A crash would occur if this
happened say over a period of 1-3 months.

So while this is true to say it's a crash isn't.

Compared with previous bond-market meltdowns, long-term Treasurys are seeing one of the most extreme undoings in history

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Submitted by gjohnsit on Fri, 10/06/2023 - 6:11pm

@ggersh started in December 2007.

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Submitted by humphrey on Fri, 10/06/2023 - 6:21pm

me curious to get a understanding. After a quick search I came across this which seems to explain (somewhat) what is happening with regards to long term bonds.

https://www.cnn.com/2023/10/05/investing/premarket-stocks-trading-bonds-...

The Fed last month signaled that it will likely raise rates once more this year and keep them elevated through 2024, accelerating the surge in yields. Treasury yields rose to their highest level in over a decade earlier this week, before edging lower on a cooldown in employment data on Wednesday.

A flurry of new government debt issuance has also inundated the bond market, pushing prices downward. The US Treasury said in July that it expects to borrow roughly $1 trillion during the third quarter ended in September, the largest debt issuance during a third quarter.

Bond prices cratered in 2022 after the Fed began drastically raising near-zero rates to tame runaway inflation. As new bonds were issued at higher rates, the value of old ones fell, since they gave holders smaller interest payments and thus lower returns on their investment. That triggered a steep selloff in bonds.

Not sure if this is accurate but it perhaps gave me a better understanding of the situation.

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Submitted by JtC on Fri, 10/06/2023 - 7:39pm

the Federal Reserve keeps raising interest rates the bond yield will go down.

Bonds that were bought at low interest rates are now coming due at much higher rates. The banks have to eat the difference.

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