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Long Bonds’ Historic 46% Meltdown Rivals Burst of Dot-Com Bubble


(Bloomberg) — Losses on longer-dated Treasuries are beginning to rival some of the most notorious market meltdowns in US history.

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Bonds maturing in 10 years or more have slumped 46% since peaking in March 2020, according to data compiled by Bloomberg. That’s just shy of the 49% plunge in US stocks in the aftermath of the dot-com bust at the turn of the century. The rout in 30-year bonds has been even worse, tumbling 53%, nearing the 57% slump in equities during the depths of the financial crisis.

The extent of the losses is a stark reminder of the risk that comes with piling into longer-dated bonds, where prices are the most sensitive to changes in interest rates. That was part of the appeal of the securities as the Federal Reserve spent the better part of a decade cutting borrowing costs to near zero.

But as the central bank has carried out the most aggressive monetary-policy tightening in decades to rein in runaway inflation, the mix of historically low starting yields, long-maturity debt and rapidly rising rates have proven to be a painful combination.

“It’s quite something,” said Thomas di Galoma, co-head of global rates trading at BTIG and a four-decade market veteran. “To be honest with you, I had never thought I would see 5% 10-year notes ever again. We got caught in an environment post global financial crisis where everybody just thought rates were going to remain low.”

The current losses in long-maturity debt more than double the next biggest slump in 1981, when then Fed Chair Paul Volcker’s campaign to break the back of inflation drove 10-year yields to almost 16%.

It also surpassed the 39% average loss in seven US equity bear markets since 1970, including last year’s 25% slump in the S&P 500 when the Fed started to lift rates from near zero.

Perhaps the single best example of the staggering pain inflicted on investors is the rout in the 1.25%, 30-year Treasury sold in May 2020. The bond has lost more than half its value since it was issued, trading at around 45 cents on the dollar.

Long-end buyers got a reprieve Wednesday from the relentless selling pressure of recent weeks. Ten-year yields initially climbed as high as 4.88% before a dramatic rally during the US session left them down about six basis points at 4.73%. Thirty-year yields topped 5% before sliding to around 4.86%.

“There’s a lot of portfolio suffering,” said di Galoma. “You’ve seen some big moves, but they don’t seem to last. This time, it’s just continuing. It’s kind of like defying gravity here.”

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