With the US 10-year bond yield briefly breaking up through the 2 per cent level last week, it’s worth noting that global bond markets in general just completed an absolutely terrible month for performance in January, following on from an equally terrible year in 2021.
Now that disinflation is over, we don’t even have to debate whether the inflation is temporary or permanent, and, the question for long-term investors as opposed to traders has to be, 'why own any bonds at all?' If a reassessment of the disappearing virtues of bonds were behind the weakness in 2021, something else has started to happen this year, which is that volatility in bond markets has started to rise sharply.
What is new, however, is that this time there doesn’t appear to be any long-term investor ready to buy the dip. Indeed, they appear to be selling the rallies. For us, that is about as simple a definition of a bear market as there is.