Bond Market Losses Are Finally Over, Unless Yields Blow Past 6%

As brutal as it’s been for US bond investors, the math is finally turning in their favor.

The recent round of selling has left the Bloomberg USAgg Index’s yield-to-duration ratio — a measure of how much yields would need to jump to wipe out the value of coming interest payments — hovering around the highest levels in over a decade.

This week, that ratio rose to 83 basis points, indicating the average-weighted yield of the securities in the benchmark would need to rise by that amount to create losses large enough to offset one year’s worth of interest.

The yield on that index — a broad gauge of investment-grade debt — hit 5.2% Tuesday, before pulling back. That means it would need to jump to around 6% to produce negative returns from here.

Few are currently expecting yields to climb that high, even with speculation mounting that the Federal Reserve will hold monetary policy tight to ensure inflation doesn’t pick up again. As a result, bonds may have finally reached the point where interest payments are large enough to insulate investors from price losses, providing a floor for a market that’s struggling to emerge from the deepest downturn since at least the 1970s.

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