The Federal Reserve has been showing no signs of letting up on aggressive rate hikes, even as its policies fuel carnage for the ages across the roughly $53 trillion U.S. bond market. The selloff has yields on everything from highly rated corporate debt to riskier mortgage bonds nearing crisis-era levels, while the Fed’s fight against high inflation slams the brakes on the U.S. economy.
As a result, borrowers from the U.S. government to major corporations and home buyers have been paying the most for access to credit in more a decade. The payoff — eventually — should be lower inflation. But for many bond investors, keeping credit spigots open over the past nine months has meant enduring the sharpest whiplash from rates volatility in their careers, even though the pain still might not be over. “We are buying some Treasurys, because we are drinking the Kool-Aid in the messaging from the Fed,” said Jack McIntyre, portfolio manager for global fixed-income at Brandywine Global Investment Management, by phone. The message from central bankers has been a vow to bring the roughly 8% U.S. inflation rate down to the Fed’s 2% annual target, through higher interest rates and a smaller balance sheet, even if it means pain for families and businesses. “But the timing of that is tough, and how much tightening is required to break inflation,” McIntyre said. “The Fed isn’t blinking. That’s why more pain could be right around the corner.” See: Fed’s Cook backs policy of higher-for-longer interest ratesWorst selloff in 40 years The dramatic repricing in bonds this year could give investors a badly needed break after a painful nine months. Much of the hit to bond prices can be tied to gyrations in rates, including the benchmark 10-year Treasury yield,
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which briefly touched 4% in September, its highest since 2010, before swinging lower and rebounding to roughly 3.9% on Friday. …