Zhitong Financial APP notes that the 40-year bull market in US Treasuries may have come to an end.

It is understood that the trend of the US Treasury market experienced one of the biggest declines in history in early 2022. Some bond investors are once again worried that bonds based on 10-year yields will start to decline. But historical records show that investors who are bearish on US Treasuries often do not perform satisfactorily. It has been observed that bond markets have always rebounded after selling in the past, thanks in part to moderate economic growth in the United States and the relatively dovish Federal Reserve. But,With the Fed signalling that it is prepared to raise interest rates sharply and shrink its table quickly to combat high inflation, the bearish view of the bond market has now been supported.

Michael Hartnett, chief investment strategist at Bank of America Corporation Global Research, said:"over the past 40 years, the bond market has been a bull market, but they will enter a bear market. "

Is the bond bull market over?

It is understood that the yield on the benchmark 10-year Treasury note has risen 136 basis points this year, to 2.87%. The The ICE BoFA US Treasury index has fallen to its lowest level since May 2019.Bonds have become one of the largest short positions among global fund managers, according to a recent survey by Bank of America.

Bond funds have experienced a series of net outflows over the past 10 weeks, the longest cycle since the end of 2013, according to ICI. Among bond funds, the most actively traded The iShares 20 + Year Treasury Bond ETF has fallen 18% this year.

Hartnett believes the yield on 10-year Treasuries could hit 5% over the next few years, and points out that while the long-term outlook is bearish, there may be tactical buying opportunities. Treasury yields could eventually rise to their highest level since 2007. Deutsche Bank analysts echoed a forecast that US Treasury yields would peak at 5 per cent in a report earlier this week, adding that aggressive tightening by the Fed could plunge the US economy into a "deep recession" next year.

Another danger sign is the comments made by Federal Reserve Chairman Jerome Powell this month about the "early stages" of the Fed's rate-raising cycle. Some investors now expect the Fed to raise interest rates by 75 basis points at its June and July meetings and 50 basis points at next week's meeting. Continued weakness in the bond market could have far-reaching implications, such as suppressing corporate borrowing costs and causing losses to investors.

Individual investors and mutual funds held $4.39 trillion in Treasuries at the end of 2021, according to the Securities Industry and Financial Markets Association. Bonds account for about 20 per cent of accounts worth more than $400000, according to Morningstar. Jim Paulsen, chief investment officer of Leuthold Group, said: "people will face a sharp decline in the value of their bond portfolios for the first time in decades. "because of its large scale, investors will be very 'hurt'. "

For stocks, the impact of rising Treasury yields on stocks depends on the final CPI, according to a study by LPL Financial. If the current rise in inflation continues, it could cause trouble for the stock market.

During the 13 periods when bond yields rose between 1962 and 2016, the average annualized return on the stock market was 6.4%, while the annualized long-term flat return on the stock market during that period was 7.1%, according to a study. However, when yields rise and inflation is high, the annualized average return of the stock market falls to-0.4%. However, the view that bonds have opened a multi-year bear market is not common. Some investors believe the Fed will succeed in curbing inflation so that they can eventually withdraw their tight monetary policy.

Andy McCormick, global head of fixed income at T. Rowe Price, says his fund has been buying 10-year Treasuries and that Fed tightening has been largely reflected in prices. At the same time, the sell-off could also attract foreign buyers to buy Treasuries, which could help stabilize prices, at least in the short term. Yields failed to break through the 3 per cent mark, which could be a "psychological level" to attract foreign buyers, according to a NatWest report.

Lou Brien, a strategist at DRW Trading Group, said foreign buyers accounted for the second-highest share of demand for two-year Treasuries earlier this week.

Ash Alankar, head of global asset allocation at Janus Henderson, plans to buy bonds when real yields remain positive."in the next 10 years, treasury bonds will not offer the same high returns as before, but they will still be attractive."He said.