Sep 9, 2022 - Economy

Bonds swoon into bear market territory

Data: Bloomberg Global Aggregate Index and Bloomberg U.S. Aggregate Index via FactSet; Chart: Axios Visuals
Data: Bloomberg Global Aggregate Index and Bloomberg U.S. Aggregate Index via FactSet; Chart: Axios Visuals

It's not just stocks. A key index tracking global bonds has also reached bear market territory.

Why it matters: Market behavior this year has thrown a wrench in the traditional 60/40 strategy — the idea that if stocks are down, then bond performance will offset the losses, and vice versa.

State of play: The benchmark S&P 500 index plunged by as much as 24% this year, and though it’s rebounded, many analysts say we’re still deep in a bear market.

  • But for most investors, their bond portfolios won't help them out either. A flagship Bloomberg index of global government and investment grade corporate bonds is now down more than 20% versus its peak in January 2021.

A bear market — or a 20% decline from a recent peak — is rare for these higher-credit quality bonds, since they tend to be much less volatile than the stock market.

  • The drawdown over the last year and a half is the index's largest fall since its inception in 1990, Bloomberg reports.

What to watch: Whether a similar index of U.S. bonds, which is currently down 12.6% from its peak, heads closer to bear territory as well.

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