Fixed income performance vs. bond market volatility
Source: Bloomberg Finance, L.P. Agg and Global Agg refer to the Bloomberg U.S. and Global Aggregate Bond Indexes, respectively. MOVE refers to the ICE BofAML U.S. Bond Market Option Volatility Estimate (MOVE) Index. As of September 7, 2022.
- Fed Chair Powell’s decidedly hawkish August 26 speech in Jackson Hole quickly reset market expectations. Prior to the meeting, markets had priced in Fed rate hikes through year end before quickly easing in early 2023.
- Rates in the U.S. and other developed countries have been volatile since Powell’s speech but have generally trended higher. The MOVE index, which measures volatility expectations for the Treasury market, has been on the rise, again nearing its two-year highs.
- 2-year Treasury yields have climbed to their highest point since 2007 (approximately 3.49%) while yields on other developed countries have followed suit.1
- Amid rising rates, the Bloomberg Global Aggregate Index (orange line) has fallen -20.7% from its 2021 peak, a rare bear market (down 20% or more) for fixed income investments while the U.S. Agg. Index (black line) is down -12.5% from its 2021 peak, marking its longest drawdown ever and largest since 1980.1
- With U.S. and global policymakers reiterating their determination to stamp out inflation, traditional fixed income may continue to face headwinds through year end. With this in mind, investors would be wise to seek alternatives that have an ability to generate income and total return potential even within a rising rate environment.