Pension funds hold large positions in US Treasuries and Agency Mortgage-backed Securities (MBS). As does America’s central bank, The Federal Reserve. All are suffering losses as The Fed fights inflation.
(Bloomberg) — Week by week, the bond-market crash just keeps getting worse and there’s no clear end in sight.
With central banks worldwide aggressively ratcheting up interest rates in the face of stubbornly high inflation, prices (created by The Fed, Biden’s Green Energy Follicies and reckless Federal spending) are tumbling as traders race to catch up. And with that has come a grim parade of superlatives on how bad it has become.
On Friday, the UK’s five-year bonds tumbled by the most since at least 1992 after the government rolled out a massive tax-cut plan that may only strengthen the Bank of England’s hand. Two-year US Treasuries are in the middle of the the longest losing streak since at least 1976, dropping for 12 straight days. Worldwide, Bank of America Corp. strategists said government bond markets are on course for the worst year since 1949, when Europe was rebuilding from the ruins of World War Two.
The escalating losses reflect how far the Federal Reserve and other central banks have shifted away from the monetary policies of the pandemic, when they held rates near zero to keep their economies going. The reversal has exerted a major drag on everything from stock prices to oil as investors brace for an economic slowdown.
And as The Fed tries to combat stubborn inflation (caused by The Fed, Biden’s Green Energy folly and reckless Federal spending), you can see the US government security liquidity is worsening.
At least inflation has produced one “positive.” REAL mortgage rates are NEGATIVE since Freddie Mac’s 30-year mortgage rate less headline inflation is currently -2.975%.
Then we have Agency MBS (example, FNCL 3% MBS) plunging like a paralyzed falcon as duration risk increases with Fed rate tightening.
Fed Funds Futures data points to tightening until May ’23, then a reversal of rate hikes.
