A Heroic End to Bonds’ Villainous Year Spurs Hope for Treasury Investors

image

(Bloomberg) — There are encouraging signs that next year will be a better one for bond investors following brutal losses in 2022.

After being smashed for much of this year by runaway inflation and breakneck interest-rate hikes from the Federal Reserve, positive returns are making a comeback in Treasuries and the market is poised for its second straight month of positive total returns. It’s been helped by a now-elevated running yield and a rebound in bond prices that’s been fueled by recession fears and signs of slowing consumer-price gains.

Of course, that’s only a slight consolation following a horrid year of losses — the biggest in at least half a century. But the factors fueling market action more recently suggest that 2023 is likely to be less painful for bondholders.

The benchmark 10-year Treasury yield, which ended this week at 3.75%, is more than half a percentage point below its October peak. And with the Fed vowing to keep hiking rates to really break inflation, expectations for an economic slump next year are growing, which could keep downward pressure on yields.

“Fixed income is going to have increased value for investors over the course of the next 12, maybe 24 months,” Mark Cabana, head of US interest rates strategy at Bank of America Corp. said on Bloomberg Television this week. “You will be seeing yields that will probably be moving lower and yields that have value in portfolios again. Investors should be thinking more constructively about fixed income broadly.”

The increase in yields also means that bonds are more appealing on a relative basis versus equities. With the prospects of an economic slump dimming the outlook for corporate America right now, the estimated dividend yield that stocks offer is looking less attractive compared to fixed income.

“You’ve got a cushion now,” if bond prices go down, Bianco Research’s Jim Bianco said on Bloomberg Television this week. “You’ve got an interest rate that we haven’t seen in 15 years.”

There are few scheduled events likely to reshape the fundamental narrative in the final, holiday-shortened trading week for 2022. But with liquidity thin, and a condensed slate of coupon-bearing debt auctions to come, there is still some scope for choppy activity in the market itself.

Meanwhile, interest-rate aficionados will also be keenly focused on potential issues in short-end funding markets. Rates on repurchase agreements suggest traders are expecting this year-end to be relatively uneventful, but it isn’t always and any disruption has the potential to roil money markets more broadly, meaning it will still be a key risk to watch as the final days of a turbulent 2022 slip into the history books.

What to Watch

  • Treasury market closed Dec. 26 for holiday, early close recommended Dec. 30
  • Economic calendar:
    • Dec. 27: Wholesale and retail inventories; advance goods trade balance; home prices; Dallas Fed manufacturing gauge
    • Dec. 28: Pending home sales, Richmond Fed manufacturing gauge
    • Dec. 29: Weekly jobless claims
    • Dec. 30: MNI Chicago purchasing managers index
  • Fed calendar: no officials scheduled to speak
  • Auction calendar:
    • Dec. 27: 13-week, 26-week and 52-week bills; 2-year notes
    • Dec. 28: 17-week bills; 2-year floating-rate notes; 5-year notes
    • Dec. 29: 4-week, 8-week bills; 7-year notes

–With assistance from Leda Alvim, Lisa Abramowicz and Tom Keene.

©2022 Bloomberg L.P.

Trending Ideas

Featured Stocks On The Move

Daily Rundown

Top 3 Stocks in Leading Sectors
  • 3 Electric Power Stocks To Buy Now

    Featured Content Hawaiian Electric Industries, Inc. (HE) Hawaiian Electric Industries, Inc. is a holding company that provides electric utility services and financial services in Hawaii. Through its subsidiaries, it supplies... Read More

  • 3 Bank Stocks To Buy Now

    Featured Content Comerica Incorporated (CMA) Comerica Incorporated is a financial services company headquartered in Dallas, Texas, offering a range of banking products and services, including commercial and retail banking, wealth... Read More

  • 3 Machinery Stocks To Buy Now

    Featured Content Alta Equipment Group Inc. (ALTG) Alta Equipment Group Inc. is an integrated equipment dealership platform in the United States, operating through three segments: Material Handling, Construction Equipment, and... Read More

  • 3 Silver Stocks To Buy Now

    Featured Content Gatos Silver, Inc. (GATO) Gatos Silver, Inc. is a precious metals mining company primarily focused on silver and zinc production. Its flagship Cerro Los Gatos mine in Mexico... Read More

  • 3 Metal Production Stocks To Buy Now

    Featured Content Century Aluminum Company (CENX) Century Aluminum Company is a primary aluminum producer, with operations that include the production of high-purity, low-carbon aluminum used in automotive, aerospace, and industrial... Read More

  • 3 Medical Drug Stocks To Buy Now

    Featured Content Teva Pharmaceutical Industries Limited (TEVA) Teva Pharmaceutical Industries Limited is a global pharmaceutical company specializing in generic and specialty medicines. The company provides a wide range of treatments... Read More

  • 3 Paper Product Stocks To Buy Now

    Featured Content AptarGroup Inc. (ATR) AptarGroup Inc. is a global leader in providing innovative dispensing and packaging solutions, serving diverse industries like beauty, personal care, and pharmaceuticals. They focus on... Read More

  • 3 Restaurant Stocks To Buy Now

    Featured Content Brinker International, Inc. (EAT) Brinker International, Inc. operates well-known restaurant brands such as Chili’s Grill & Bar and Maggiano’s Little Italy. The company is a leader in the... Read More

  • 3 Investment Brokerage Stocks To Buy Now

    Featured Content Robinhood Markets, Inc. (HOOD) Robinhood Markets, Inc. is a financial services company known for its commission-free trading platform, which allows users to trade stocks, options, cryptocurrencies, and ETFs.... Read More

  • 3 Shipping Stocks To Buy Now

    Featured Content ZIM Integrated Shipping Services Ltd. (ZIM) ZIM Integrated Shipping Services Ltd. is a global container shipping company that provides cargo transportation services worldwide. The company operates a modern... Read More

  • 3 Mining Stocks To Buy Now

    Featured Content Perpetua Resources Corp. (PPTA) Perpetua Resources Corp. is a mining company focused on the exploration and redevelopment of the Stibnite Gold Project in Idaho, which is one of... Read More

  • 3 Airline Stocks To Buy Now

    Featured Content General Electric Company (GE) General Electric Company is a global industrial conglomerate with operations spanning sectors such as aviation, healthcare, power, and renewable energy. GE is known for... Read More