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Assessing the Current Bond Carnage of 2022.

I needed to do some research into short term bonds and based on my data, this is one of the worst drawdowns in short term bonds in the last 20 years.

There are a lot of charts showing the extent of the correction, to the point where you wonder if we reached an inflexion point that bond investors will behave differently.

Net new cash flow from bond mutual funds is negative which indicates money is flowing out of bond mutual funds (unit trusts)

This chart from Yardeni probably shows bond outflows from the unit trust are not uncommon.

According to Bloomberg calculations, U.S. aggregate bonds are about to trade at a 32-year record discount to par.

The all-data log chart for US 10-Year Treasury Bond yields is the most important trend line of all time, ever, in any and all markets.

Carter Braxton Worth

Blackrock’s TLT, the 20+ yr Treasury fund is down 24% from its highs, the biggest drawdown since the financial crisis.

The longer the duration, the more sensitive the bonds to the interest rate. But it is worth noting that the deepest drawdown is still less than equities.

Still, people investing in bonds, are assured that they give them peace of mind, but you wonder if some are taking it by being put into longer duration bonds by their advisers.

Some of my peers use the Direxion Daily 20+ Year Treasury Bull 3X Shares ETF, 3 times leverage Treasury ETF, partly in a leverage strategy together with a 3 times leverage equity ETF.

The drawdown is 66%, not exactly 3x the TLT you see previously, most likely due to the compounding effect of leverage ETF (do Google that up)

There seems to be strong long term support for the TLT. Currently, the TLT is at 123, which might be below that support.

Perhaps it indicates that the yields are just very stretched.

Here is the 30-year US Treasury Bond.

The US Aggregate bond ETF is having one of the worst drawdowns in a while… but it is down 8.93% only.

The worst drawdown means different things in the different asset classes.

The average duration is 6.6 years and an average yield to maturity of 3.19%.

IEF, the iShares 7-10 yr Treasury ETF, is also in its worst drawdown of all time. Here is the historical drawdown chart as of yesterday’s close.

For all duration, bonds are oversold.

HYG, the iShares iBoxx US$ High Yield Bond ETF is down 9.7%. Doing quite alright as the high yield bonds usually are the least affected by rising yields.

However, they are a barometer for equity health, and this does not bode well.

I will probably provide more bond data tomorrow.

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