In case you just got back from a long vacation, investors have been whipsawed as both stocks and bonds were destroyed. Never mind about stocks which are more “volatile” than bonds, the losses in long-duration bonds have now exceeded -50% from the top in what is supposed to be an ultra-safe low volatility asset. This is a bigger decline than the S&P 500 suffered during the Great Financial Crisis. 10-year Treasury yields, the benchmark of all other benchmarks have seen their largest increase in at least two decades.


Damn it! Rising real yields and JGB changes have been a key driver of the recent push higher in US treasury yields. It is not just the US, Japanese yields are also surging. Well, interest rates and bond prices move in opposite directions. If rates rise, then bonds suffer. If rates fall or move sideways, then bonds prosper. Lower demand from China/Fed have also contributed to the big repricing.

Here are the worries or fears according to the bears. The bond meltdown is threatening hopes for a soft landing for the US economy while fears over the widening federal deficit continue to mount with all the political turmoil in Washington. Unsurprisingly, the CNN Fear and Greed Indicator reached extreme fear.

Nothing is guaranteed in life. For years, a generation of investors have been taught that US Treasuries are a safe-haven asset. If you wanted to park your money, treasuries were the way to go. Bonds riskier than stocks? What now? The bond market collapse breeds opportunity for rational investors.
What will stop this madness? Who cares? I don’t merely seek out the highest-yielding assets, but rather those offering the best risk-adjusted return. The price adjustment has already been substantial. Yields can’t go up forever. When they unwind, the move can be powerful. Once the tide begins to turn, sidelined cash should flood back into the market, rapidly driving yields down and prices up.
Buying in times of fear tends to work well more often than not in the market, and there is certainly plenty of fear among investors right now. I have increased my exposure to long duration bonds that pay double-digit yields annually.