WOW! The Bond market is going nuts. 20-Yr Treasury Bond ETF TLT 0.00%↑ dropped 2.46% today and the 20-Year Treasury Yield is approaching 5%. I just did some analysis. If you invested in TLT 0.00%↑ 10 years ago, your IRR would be 1.19%. If you invested in the more popular BND 0.00%↑ (Vanguard Total Bond Market ETF) 10 years ago, your IRR would be 1.39%. In comparison, SPY 0.00%↑ ’s 10 year IRR is 11.7%. The Fed’s ZIRP policy basically screws over bond investors, many of whom are pension and retirement funds who heavily rely on fixed income instruments to satisfy their obligations. Approximately a year ago, I wrote about the risk free return approaching 4%. Now, we are getting used to the 5+% savings rate and the long term yield is now surging. The implication here is that long-term bond holders are probably seeing a lot of unrealized losses in their portfolio. Remember how the SVB fiasco unfolded: large unrealized losses coupled with a liquidity crunch. Now the unrealized losses for treasuries and agency MBS are getting bigger. Something is gonna break soon and it may end up turning the soft landing hard.
Comments
No posts