The US bond market is in the midst of an unprecedented three-year selloff, according to the world’s largest asset manager, and the decline still has space to grow.
Since the end of 2020, benchmark 10-year yields have more than quintupled due to the impact of decades-high inflation, a sharp increase in interest rates, and concerns of a sovereign debt crisis.
The rise in yields has escalated in recent weeks, frightening traders across asset classes, after the Federal Reserve signaled last month that rates will remain elevated for an extended period of time due to persistent inflation risks. Since early 2022, the central bank has increased key interest rates by more than 500 basis points – the steepest increase since the 1980s – to contain consumer-price pressures.
BlackRock stated in its fourth-quarter update to its investment outlook that it will avoid investing in long-term US bonds because it anticipates yields to continue to rise. Bond yields increase as bond prices decline.
“We continue to avoid long-term U.S. bonds despite their recent appreciation. Why? As markets price in persistent inflation, higher-for-longer rates, and high debt loads, we believe term premium – the compensation investors demand for the risk of holding long-term bonds – will rise further, pushing yields higher,” investment experts at the asset-management giant led by Philipp Hildebrand wrote in the report.
Since the end of 2020, the iShares 20+ Year Treasury ETF, which measures longer-duration US government bond prices, has fallen a staggering 46%. During the same time period, 10-year Treasury yields increased from 0.92 to 4.72 percent.
