Pimco, BlackRock Call End to Era of Stable Borrowing Costs

Bond-market titans BlackRock Inc., Pacific Investment Management Co., and Vanguard Group Inc. are warning that recent violent swings in US Treasuries are only the beginning of a new era of volatility that’s here to stay until central banks conquer inflation.

A closely watched measure of turbulence in the world’s biggest bond market has already risen to levels last seen during the Great Financial Crisis. A bevy of risks has buffeted money managers in 2023, from banking-sector tumult to the debt-ceiling standoff, capping two years of wild movement in interest rates as the economy emerged from the pandemic.

For these fixed-income powerhouses, who manage trillions of dollars between them, this is the new reality investors will have to grapple with, potentially for years to come. They point to the Federal Reserve’s switch to inflation-fighting mode after buying up trillions of dollars of debt since 2009 to support growth — an effort that helped depress volatility and spur the seismic shift toward passive investing in bonds.

“We’ve gone back to the future – back to normal — which makes sense as the Fed has taken its thumb off the scale,” said Harley Bassman, who created what is now known as the ICE BofA MOVE Index, a widely used gauge of implied volatility in Treasuries, while at Merrill Lynch in 1994. He’s now at Simplify Asset Management Inc.

Farewell to Moderation | US Treasury rate volatility breaks higher from prior decade