Did you know we’re on the longest drawdown in the bond market of the last 50 years, calculated using the U.S. Aggregate index? It’s due to the fact that in the 70’s as inflation was ramping up, Paul Volcker raised interest rates to control inflation. Since then, we have enjoyed the longest bull market in rates in recent history. That appears to have ended on 2020. And it’s not only a U.S. phenomenon, Japan in 2019 had a 10 year JGB yield of -0.3%, and that yield is today 1.06%, almost 140 bps higher. In Europe, they have a similar situation since they also experimented with negative nominal interest rates. The amount of mark to market losses on bond portfolios is huge. What happens if we enter a period of stagflation as suggested by the latest inflation and GDP data?
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