The Bond Market Turmoil: Unprecedented Decline in Long-Term Treasurys


Long-term Treasury bonds have experienced a staggering collapse, marking one of the most severe market crashes in history, according to Bloomberg. Since March 2020, Treasury bonds with maturities of 10 years or more have plummeted by a staggering 46%, a decline nearly equivalent to the losses witnessed in the stock market during the dot-com bubble burst.

The bond market is grappling with rising yields, witnessing a significant milestone as the 30-year Treasury breached the 5% mark for the first time in decades. Experts are now anticipating a comparable trajectory for the 10-year note. (Image Credit: Scott Olson/Getty Images

Unprecedented Losses

The ongoing bond rout has surpassed the levels seen in 1981 when the 10-year yield nearly reached 16%. These losses are almost on par with the significant downturns observed in the stock market following historical crashes — a 49% slump after the dot-com bubble and a 57% decline in the aftermath of the 2008 financial crisis.

Comparatively, this current bond-market meltdown, especially in long-term Treasurys, is one of the most extreme in history. The losses now are more than double the magnitude of the 1981 crash when 10-year yields approached 16%. This situation echoes the period when former Federal Reserve chair Paul Volcker grappled with unprecedented inflation, pushing the federal funds rate just under 20%.

Causes of the Turmoil

Although present-day interest rates remain considerably lower than those of 1981, the Federal Reserve’s aggressive shift toward monetary tightening in the post-pandemic era has triggered a similar bond-market upheaval. Traders continue to sell bonds due to concerns about resurging inflation. Moreover, a significant increase in Treasury issuance this year has added pressure to bond prices.

Long-duration yields have surged to levels not seen since 2007. The 30-year note has surpassed the 5% barrier for the first time in decades. Investors are anticipating a similar trajectory for the 10-year yield, which is hovering just above 4.7%. Influential investors, including Bill Ackman, Ray Dalio, and Bill Gross, predict the 10-year yield could reach 5% in the near term.

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