2022 Is Worst Year For US Bonds Since George Washington

The first five months of 2022 were cruel for bonds. That much you probably know.

What you may not be apprised of, though, is the historic nature of the rout.

Accounts of this year’s macro conjuncture are replete with references to the 1980s, but not many to the 1780s.

“Worst start to the year on record,” Deutsche Bank’s Jim Reid wrote, setting up the remarkable visual (below) which shows that, according to a gauge from California-based Global Financial Data, which builds indexes by appending historical records to more conventional series, benchmark US debt just suffered its worst start to a year since 1788, the year before George Washington assumed the presidency.

Apparently, the index includes notes issued by Boston City in the 1830s, bonds sold to finance the first World War and quotes from Hunt’s Merchants’ Magazine, among other obscure inputs.

The rest of Reid’s chart deck was a compendium of similarly striking curiosities including, but certainly not limited to,

• Real policy rates in Europe, at -8%, are the lowest since at least 1954 by a margin of at least five full negative percentage points
• Using data from West Germany before reunification, German inflation is the highest since 1950
• In 66 out of 73 countries, YoY CPI is running above the 10-year average, the highest percentage on record by a margin that’s not close
• At the end of the 1970s, developed market bonds were the cheapest relative to equities ever, but now, they’re still near the most expensive going back to 1800

As most readers are doubtlessly aware, stock losses over the first six months of this year mean 2022 will be enshrined in the annals of market history for one of the worst first halves on record for US shares.

Through June 17, the S&P was on track for its worst H1 since 1932. As of Wednesday, it was the worst H1 since 1970. We’ll see how it ends up next week.

The read-through for multi-asset investors from the simultaneous selloff in equities and bonds is poor indeed. Reid offered some eye-opening statistics on that score as well.

Through Q1 of 2022, there were only three instances in 50 years of the S&P falling 5% or more with a simultaneous drop of at least 2% in US Treasurys during a single month. April was the fourth such instance (figure below).

As Reid exclaimed, “June is set to be the fifth as it stands!!!”

Do note: Those figures aren’t extrapolated from any obscure data sources or offbeat indexes. That’s just the S&P and Bloomberg’s UST gauge.

So, we’re currently witnessing two almost consecutive instances of a market event which, until this year, had only happened three other times in a half-century.