The long end of the curve in the U.S. keeps suffering. Since the pandemic, and due to the rise in inflation and the subsequent rate hikes by the Fed, the 30 year Treasury bond is experiencing a drawdown of 51%, which is the maximum over the last 40 years, and we would have to go back to pre-Volcker era to see a behavior like this. Which begs the questions: in an environment with tariffs, which can prompt an acceleration in inflation, is there a ceiling to the rise in yields in that long end of the curve? What’s the impact of current rates on the mortgage/Real Estate market? For Banks that own long duration bonds bought prior to 2022, and that are experiencing similar drawdowns to the one in the chart below, when will they be able to get out of that trade? How is that affecting lending?
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