It has not been an easy year so far for the financial markets, some would say even a terrible one. When you compare 2022 to a date of more than two hundred years, it looks even worse.
Global bonds are now in their first bear market in 76 years after falling 20% from their peak, according to a study published by Deutsche Bank in which it examined data dating back to 1786. The last time global bonds were at this low level was 1946 , when the United Nations first met in London after the end of World War II.
In the background, last Monday the Dow Jones fell by over 20% from its record high and joined the S&P 500 in a bear market.
Expectations of more aggressive interest rate hikes are fueling global bond sales, pushing up yields in emerging markets. Many economists expect central banks to rein in soaring inflation, which is at a 40-year high in some parts of the world, so investors are responding with a brutal selloff of government bonds. This pushes the yields on government bonds for several years higher, especially in the US.
The global government bond market has so far erased a decade’s worth of nominal returns, based on 10-year returns. “By the end of September 2022, this could be the worst period of 10-year returns in US government bond history.” , noted in a Deutsche Bank study.
“What makes the current period even worse historically is that we are seeing deep losses in nominal values, which has not happened in the past for many countries except during times of war or economic collapse,” added Deutsche Bank researchers Jim Reed, Henry Allen, Luke Templeman and Adrian Cox.