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The 1.5% treasury note of February 15, 2030, sold at a .31% yield (111-19) on March 9, 2020 (all yields/prices per Bloomberg). This past week that note traded at 2.52% (92-23). This is an almost 19-point loss or 17% on the bellwether ten-year treasury note.

Worst Quarter Since 1973

March 30th, 2022 by Kurt L. Smith
  • Bloomberg published this line on March 22nd as their US Treasury Index had lost 5.55% since year end, surpassing the 5.45% loss at the beginning of 1980, the biggest quarterly decline since their index was created. In the middle of the bond bear market’s first move, this type of poor performance is to be expected.

    Some people look at the bond market’s performance as the tortoise versus the stock market’s hare. Every day, bond investors look into the mirror (at bond performance) and it looks as if little has changed. Here, in the early stages of the bond bear market, nothing could be further from the truth.

    The yields on the risk-free US treasury bellwethers we track have soared over the past two years. The 1.5% treasury note of February 15, 2030, sold at a .31% yield (111-19) on March 9, 2020 (all yields/prices per Bloomberg). This past week that note traded at 2.52% (92-23). This is an almost 19-point loss or 17% on the bellwether ten-year treasury note. Longer maturities fared far worse. Our bellwether is the 2.375% of November 15, 2049, and it sold at .70% or 140-17 on March 9, 2020. Last week this bond sold at 2.67% (94-09) for a 46-point loss or 33% of value.

    Bond bear market? I do not recall reading that headline in the New York Times or splashed across magazine covers of late. But a dribble here and a dribble there while looking in the mirror has eroded significant values in the risk-free-rate US treasury market.

    Almost all this price erosion happened before the Federal Reserve hiked interest rates. That did not happen until March 16th. So much for fed leadership; how’s that for Fed response?

    There are many narratives out there regarding why markets are behaving the way they are. Therefore, it is critically important to watch the markets themselves. The downward move in bonds is the first move of the bear bond market. It may or may not be over it; maybe merely gaining steam.

    Look at the recent performance of the bond mutual funds you hopefully sold or were a favorite from years past. Whether they invest in US treasuries, corporates or municipals, these bond funds have almost all been hit with dramatic first quarter year to date losses. This is quite dramatic compared to my year letter “Bonds Continue Their Roll (Role)” in which I posited bond investors appeared non-plussed about their bond mutual funds. This may still be the case.

    The underlying cause of this, so far, inability to move the needle for investors is optimism. Just look at where we are stock market value-wise. That’s a lot of optimism, in fact, the culmination of decades of optimism. What, me worry? Why?

    Again, it is important to look at what the stock market has been doing. Whether you watch the Dow, the S&P 500, the NASDAQ, or even the Russell 2000, these indices have fallen and rebounded. Overall, performance is off, but investors may believe they have seen this movie before.

    Most have. Stocks peaked February 19, 2020 and fell to a February 28th low (3393 to 2855) or 15% before rebounding back to 3136 a few days later. We remember what happened next. If you don’t like recent history, look back to October 2007, rebounding into May 2008, before stock prices dropped into 2009 lows.

    This is the problem with the end of decades long trends, particularly after we added fifteen years to the trend since the Great Recession. The stock market needs to move ever higher, or it risks a larger correction. This is the risk that stock investors face… once again, but now in the face of dramatically rising interest rates.

    US treasuries continued to decline in price since the March 22nd Bloomberg story giving rise to new ledes on Bloomberg such as today’s (March 28th) “the steepest global bond rout of the modern era extended Monday.” Be very careful out there. If stock prices fail to rally further in the coming weeks, we may see another steep sell off in stock prices as in the past, except now the territory to correct is unprecedently high. You do have alternatives here.

    Vernon Independent School District, TX

    Unlimited Tax School Building Bonds, Series 2022

    A S&P Underlying

    NR/AAA/NR on PSF Guarantee

    Due 2/15   Dated 4/15/22 Maturity 2/15/52

    $37,530,000 Sold

    Years   Maturity            Coupon      Yield*

    1             2023               5.00%            1.38%

    2             2024               5.00%           1.63%

    3           2025              5.00%           1.78%

    4             2026             5.00%           1.88%

    5            2027             5.00%           1.99%

    6            2028             5.00%           2.09%

    7            2029             5.00%           2.16%

    8             2030              5.00%           2.25%

    9             2031              5.00%           2.30%

    10           2032**          5.00%           2.37%

    11           2033**          5.00%           2.45%

    12          2034**         5.00%           2.47%

    13          2035**         5.00%           2.50%

    14          2036**         5.00%           2.77%

    15          2037**         5.00%           2.79%

    16          2038**         4.00%           2.81%

    17           2039**         4.00%           2.84%

    18           2040**         4.00%           2.86%

    19          2041**         4.00%           2.88%

    20           2042**         4.00%            2.90%

    23           2045**         4.00%            2.98%

    30          2052**          3.50%            3.60%

    *Yield to Worst (Call or Maturity) ** Call 2/15/31

    Source: Bloomberg

    This is an example of a new issue priced the week of 3/21/22

    Prices, yields and availability subject to change


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