Treasury yields post record rise in worst year ‘within any of our lifetimes’ for bond investors

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Treasury yields moved mostly higher in a holiday-shortened session Friday, capping a brutal, record-breaking bond-market selloff in 2022.

Trading in U.S. fixed-income markets closed an hour early at 2 p.m. Eastern on Friday, as recommended by securities industry trade group Sifma. U.S. markets will be closed Monday in observance of the New Year’s Day holiday, which falls on Sunday.

How yields performed
  • The yield on the 2-year Treasury note

    rose 3.1 basis points to 4.399% at 2 p.m. Eastern.

  • The 10-year Treasury note

    yielded 3.826%, down 0.7 basis point.

  • The yield on the 30-year Treasury bond

    rose 1.2 basis points to 3.934%.

Market drivers

A steep Treasury selloff sent yields soaring in 2022 as the Federal Reserve quickly and aggressively raised its policy interest rate in its bid to bring down inflation that had hit a nearly four-decade high.

In 2022, the yield on the 2-year note soared 3.67 percentage points through Thursday, while the 30-year yield jumped 2.05 percentage points — the largest calendar-year rises on record based on data going back to 1973, according to Dow Jones Market Data. The 10-year yield jumped 2.33 percentage points, the largest on record based on data going back to 1977.

The yield curve has inverted, with measures of short-dated yields trading above longer-dated yields. The phenomenon is seen as a reliable harbinger of recession, though questions about its usefulness in the present scenario persist.

Check out: Economist who pioneered use of closely followed recession tool says it may be sending ‘false signal’

The surge in yields contributed to a sharp selloff in stocks, with the S&P 500

on track for a 2022 fall of around 20%, its biggest annual drop since 2008.

What analysts say

“Today will close the most difficult year for stock investors since 2008 and the worst year for bond investors basically within any of our lifetimes,” wrote Tom Essaye, president of Sevens Report Research, in a Friday note.

“Rising rates were a material headwind on stocks in 2023,” Essaye wrote. “But declining inflation pressures and a slowing economy should put pressure on longer-dated yields in 2023, and it’s the basis behind our contrarian preference for longer-dated, high-quality bonds as a tactical long in 2023. And a drop in yields could be a very real surprise positive for markets in the year to come.”

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