There have been fluctuations all along the way, but interest rates and inflation have generally trended lower for 40 years. This generated the longest running bull market in bonds ever. However, this has changed now!
As a result of massive fiscal stimulus, super-easy monetary policies, issues in the global supply chain, and sharply rising energy prices, we now have the highest inflation in 4 decades. Barring a recession or some other adverse event, we will almost certainly see much higher interest rates in 2022 and 2023. The Federal Reserve has promised to react with multiple increases in interest rates this year and next. That’s why most bond returns are negative year to date and this will not change for the foreseeable future.
With inflation at historic highs and the Federal Reserve well behind the curve, the 40-year bull market in bonds should be over.
Sven Franssen