The recent round of selling has left the Bloomberg USAgg Index’s yield-to-duration ratio — a measure of how much yields would need to jump to wipe out the value of coming interest payments — hovering around the highest levels in over a decade.
Few are currently expecting yields to climb that high, even with speculation mounting that the Federal Reserve will hold monetary policy tight to ensure inflation doesn’t pick up again. As a result, bonds may have finally reached the point where interest payments are large enough to insulate investors from price losses, providing a floor for a market that’s struggling to emerge from the deepest downturn since at least the 1970s.
Prices slid again this month, driving Treasuries briefly back into the red for the year, due to a confluence of forces, including the economy’s resilience and a deluge of new Treasury sales. The selloff sent 10-year Treasury yields to as high as 4.36% on Tuesday, a 16-year high.
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