The bond market is entering a new phase of bearishness, characterized by deteriorating liquidity and increasing volatility. U.S. Treasury bonds, long considered safe-haven assets, are now facing significant headwinds. The resurgence of a bond bear market, influenced by factors such as rising oil prices, swelling government deficits, and excessive bond inventories held by primary dealers, presents a challenging environment for fixed-income investors.
This shift comes on the heels of a brief period of bullish signals in late 2023 and mid-2024, driven by favorable liquidity conditions and a decline in 10-year Treasury yields to over 4.5%. However, key indicators of bond market health, have since plummeted, signaling a return to bearish conditions. This note explores the forces behind the current bond market dynamics and provides insights into bypassing this challenge.
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