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Bond market bubble bursts losing over $12 trillion of value from all-time highs

Bond market bubble bursts losing over $12 trillion of value from all-time highs
Dino Kurbegovic

Around the world, central banks are aggressively raising rates in an attempt to battle persistent and stubborn inflation while bond prices are slowly trending down. The pandemic was followed up by the Russian invasion of Ukraine and topped off by an energy crisis in Europe and rising global inflation. 

As global bonds lost another $1.2 trillion in value over the past week, Welt’s Holger Zschaepitz took to Twitter on September 25 to proclaim the bursting of the bond bubble as the total losses of bonds exceeded $12.2 trillion. 

“Looks like the bond market bubble has burst. The value of global bonds has plunged by another $1.2tn this week, bringing the total loss from ATH to $12.2tn.”  

Value of Global bonds. Source: Twitter 

Catching up to the Fed

Investors are nursing large losses as they’re trying to catch up to the US Federal Reserve (Fed) outlook on rates, which seem to indicate another round of aggressive interest rate hikes. These moves have forced currency traders to prop up the US dollar, actively forcing a run out of other assets. 

Meanwhile, CaxtonFX chief strategist Michael Brown stated that besides the Fed’s strategy, everything else in the market is simply noise at this point, as he expects the sell-off to continue. 

“The Fed’s message on Wednesday was clear, that rates are going higher than the market was pricing, and policy will remain restrictive for a prolonged time to come, likely throughout 2023 – in that environment, it’s almost impossible to be long stocks, or to want to buy Treasuries; hence the sell-off in both is no surprise, and should continue.”

Bleak outlook

Famous macro investors like Ray Dalio and Stanley Druckenmiller have been warning for some time of broader markets taking a plunge due to global macro stress, and in a way, their calls are being vindicated at the moment. 

Across the globe, the growth outlook seems bleak, and market participants would be best served by patience and vigilance in a potentially protracted bear market

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