Investment experts at BlackRock (NYSE:BLK) reported a significant sell-off in the US bond market, marking an acceleration in bond yield increases due to persistent inflation, steep interest rate hikes, and fears of a sovereign debt crisis. The Federal Reserve's strategy to maintain high rates for an extended period in an attempt to control inflation has contributed to this yield surge.
The iShares' 20+ Year Treasury ETF has suffered a substantial drop of 46% since 2020. Meanwhile, 10-year Treasury yields have seen a significant leap to 4.72% from their previous level of 0.92%. This situation has led BlackRock to steer clear of long-term US bonds due to the expectation of further term premium and yield increases.
Several financial experts, including Bank of America (NYSE:BAC) strategists, billionaire investor Ray Dalio, and ING strategists, agree that this is the most severe bond bear market in US history. Dalio has warned of a "classic late, big-cycle debt crisis," while ING strategists predict that 10-year Treasury yields could reach mid-2007 levels of 5%.
The annual inflation rate has climbed to 3.7%, further intensifying the financial landscape. Over the past decade, US government debt has doubled, reaching a record-breaking $33 trillion.
Despite these challenging conditions, BlackRock shows preference for short-dated US bonds like two-year Treasuries. These bonds offer high yields with relatively lower risk compared to their long-term counterparts. This perspective aligns with economist Nouriel Roubini's concerns about the current financial situation.
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