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Central bank pressure pushes bonds into a “bear market”. For the first time in over a decade

The global bond market has tumbled 20% since its peak in 2021. The monetary authorities’ tightening policy has meant the end of four decades in the bull market.

The global bond market went into a bear market this Friday after tumbling 20% from its peak in 2021—the most since its inception in 1990. Constant speeches by members of monetary authorities around the world have accelerated this drop, reinforcing every day the need to continue raising interest rates in order to control galloping inflation around the world in the aftermath of the Ukraine war.
The chairman of the US Federal Reserve reiterated his intention to maintain a tight monetary policy “for some time” even if it represents “some pain” for households and businesses.
On this side of the Atlantic Ocean, days after Powell, Isabel Schnabel, member of the executive board of the European Central Bank , mentioned the need to maintain the increase in key rates because “the slowdown in economic growth” in the case of a recession-which Schnabel says is not off the table-“is probably not enough to slow inflation.”

In view of these tougher speeches, analysts have less and less doubt of a further interest rate hike at the September meetings. The new signals given by central banks follow a wave of interest rate hikes around the world that has been going on since last year and has led the bond market to thus end four decades of «bull market» in a highly volatile and uncertain investment environment.
Europe has been one of the regions most affected by the energy crisis, resulting from the Russian invasion of Ukraine and consequent sanctions applied by the European Union. China, on the other hand, has opted for the opposite strategy, to decrease interest rates as a way to stimulate the world’s second largest economy.
During the tenure of then Fed Chairman Paul Volcker, interest rates rose 20%, and Treasury bond yields rose 16%.

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