Pension funds have significant positions in US Treasuries and mortgage-backed securities (MBS). Just like the central bank of the United States, the Federal Reserve. All are suffering losses as the Fed fights inflation.
(Bloomberg) – Week by week, the bond market slump continues to worsen, with no clear end in sight.
With central banks around the world aggressively raising interest rates in the face of stubbornly high inflation, prices (created by the Fed, Biden’s Green Energy Follies and reckless federal spending) are falling as traders they run to catch up. And with that has come a parade of superlatives about the villain he has become.
Britain’s five-year bond fell to the most since at least 1992 on Friday after the government launched a massive tax cut plan that can only strengthen the Bank of England’s hand. Two-year US Treasuries are in the midst of their longest losing streak since at least 1976, falling for 12 straight days. Around the world, strategists at Bank of America Corp. they said government bond markets are on course for the worst year since 1949, when Europe was rebuilding from the ruins of World War II.
The mounting losses reflect how far the Federal Reserve and other central banks have moved away from pandemic monetary policies, when they kept rates close to zero to keep their economies afloat. Investing has taken a big toll on everything from stock prices to oil as investors brace for an economic slowdown.
And as the Fed tries to fight stubborn inflation (caused by the Fed, Biden’s Green Energy madness, and reckless federal spending), you can see the US government’s liquidity safety getting worse.
At least inflation has produced a “positive”. REAL mortgage rates are NEGATIVE as the Freddie Mac 30-year mortgage rate minus total inflation is currently -2.975%.
Then we have Agency MBS (example, FNCL 3% MBS) which is plunging like a crippled hawk as duration risk increases with Fed rate tightening.
Fed Funds Futures data points to a tightening until May 23, then a reversal of rate hikes.