How Bonds Have Fared Since 8/4/20

 
View from the Observation Deck  
  1. The yield on the 10-year Treasury note (T-note) closed at an all-time low of 0.51% on 8/4/20, according to Bloomberg.  
  2. From 8/4/20 through 4/22/22, its yield rose from 0.51% to 2.90%, or an increase of 239 basis points, based on the close of trading. It reached as high as 2.94% on 4/19/22 during the period.    
  3. As indicated in the chart above, the worst-performing bond categories for the period all track high-grade debt. 
  4. Since 8/4/20, investors have favored speculative-grade bonds over investment-grade debt, as evidenced by the positive total returns posted by leverage loans (senior loans) and high yield corporate bonds. 
  5. Emerging market bonds and intermediate-term global government bonds were deep into negative territory for the period captured in the chart. The strength in the U.S. dollar definitely had a negative impact on the performance of foreign bonds, in our opinion. The U.S. Dollar Index (DXY) rose by 8.40% over the same period, according to Bloomberg.   
  6. Inflation has surged. The trailing 12-month CPI (Consumer Price Index) stood at 8.5% in March 2022, up from 2.6% a year earlier. The CPI is at a level not seen since 1982, according to data from the Bureau of Labor Statistics.
  7. On 3/16/22, the Federal Reserve ("Fed") initiated a 25 basis point hike in the federal funds rate. Fed Chairman Jerome Powell commented on 4/21/22 that the Fed is committed to raising rates "expeditiously" to lower inflation, according to CNBC. The CME Group's FedWatch Tool indicated that expectations for a 50 basis point hike in May was 97.6% on 4/21/22. Stay tuned!    

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The ICE BofA U.S. High Yield Constrained Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The S&P/LSTA U.S. Leveraged Loan Index is a market value-weighted index designed to measure the performance of the U.S. leveraged loan market. The ICE BofA Emerging Markets Corporate Plus Index tracks the performance of U.S. dollar and euro denominated emerging markets non-sovereign debt publicly issued in the major domestic and eurobond markets. The ICE BofA Fixed Rate Preferred Securities Index tracks the performance of investment grade fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. The ICE BofA 1-3 Year U.S. Corporate Index is a subset of the ICE BofA U.S. Corporate Index including all securities with a remaining term to maturity of less than 3 years. The ICE BofA 1-3 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity of less than 3 years. The ICE BofA 22+ Year U.S. Municipal Securities Index tracks the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions with a remaining term to maturity greater than or equal to 22 years. The ICE BofA U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA 7-10 Year Global Government (ex U.S.) Index tracks the performance of publicly issued investment grade sovereign debt denominated in the issuer's own domestic currency with a remaining term to maturity between 7 to 10 years, excluding those denominated in U.S. dollars. The ICE BofA 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity between 7 to 10 years. The ICE BofA Freddie Mac Mortgage Backed Securities Index is a subset of the ICE BofA U.S. Mortgage Backed Securities Index including all generics representing pools issued by Freddie Mac.

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Posted on Tuesday, April 26, 2022 @ 11:10 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.