Fifty cents on the dollar is a very low price in the world of bonds. In most cases, it signals that investors believe the seller of the debt is in such financial distress that it could default.
So when a US Treasury bond sank below that price Monday, it raised eyebrows. The security, due in May 2050, briefly touched as low as 49 29/32, marking the second time in the past two months it’s fallen below the 50-cent level.
The US, of course, is not in danger of defaulting any time soon. Treasuries are generally considered to be the safest government debt in the world. What the price does illustrate in this case is the scope of pain inflicted on investors who piled into longer-term debt at rock-bottom interest rates during the pandemic, only to then be caught off-guard when the Federal Reserve carried out the the most aggressive monetary-policy tightening in decades.
The bond due in 2050 has been hit particularly hard, given that its interest rate — 1.25% — is the lowest ever on a 30-year Treasury. Investors got over 4% on 30-year debt issued last month.
“Those bonds have below market coupons and investors need to get compensated for it,” said Nancy Davis, founder of Quadratic Capital Management.