The bond market collapsed. Why a strategist says embrace the pain and come back inside.

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Investors are more or less trained to think of assets in stock market terms. In other words, a correction is a 10% drop from its peak, and a bear market is a 20% drop, etc.

But not all assets are equal. In a market as volatile as, say, bitcoin BTCUSD,
+2.33%,
a 20% drop is not as significant. Conversely, for an asset as stable as bonds, a smaller drop has more impact.

And the 11% drop in the Bloomberg US Aggregate Bond Index from its peak is the biggest drop since the bond bull market began more than 40 years ago. “My friends, it was a bond crash,” says Kevin Muir of the Macro Tourist blog. “There is no other way to describe it.”

So the natural discussion after a crash is whether, or when, fortunes will reverse. Lance Roberts, chief investment strategist at RIA Advisors, argues that the time has come.

Roberts argues that the US economy is more indebted than ever, with the average consumer needing $6,400 in debt a year to maintain current living standards. “That’s why, with the heavy need for cheap debt to support living standards, large rate hikes have an almost immediate impact on economic activity,” he says.

Technically speaking, he adds, the 10-year Treasury yield TMUBMUSD10Y,
2.759%
is now 4 standard deviations above its 52-week moving average and near the top of the 1980 long-term downtrend channel.

Roberts says that while yields may rise temporarily, there is a point where something breaks, which will cause deflationary pressures to reassert themselves. Roberts notes that previous bond bear markets have reached new highs, in as little as two months.

“While buying bonds today could still cause some difficulties, we are probably closer to a significant buying opportunity than not,” he said. “More importantly, if we are correct, the next bond bull market will likely outperform equities and inflation-linked trades over the next 12 months.”

The buzz

MicrosoftMSFT,
-3.74%
beat earnings expectations after raising prices for its suite of Office products.

Alphabet GOOGL, owner of Google,
-3.59%
reported a profit boost that missed analysts’ estimates as it announced a new $70 billion share buyback plan.

Wednesday’s earnings slate includes Boeing BA,
-5.04%,
T Mobile US TMUS,
-2.99%,
and after the closing, the owner of Facebook Meta Platforms FB,
-3.23%
and Ford Motor Co.F,
-3.16%

MattelMAT,
-4.70%
Shares rose in premarket action after The Wall Street Journal reported that the toymaker held informal talks with private equity firms Apollo Global Management and L Catterton about its takeover.

European natural gas contracts jumped after Russia cut off supplies to Poland and Bulgaria.

Barclays economists cut their estimate of first-quarter gross domestic product by 1.2 points, to 0.5%, ahead of Thursday’s release.

Bill Hwang of Archegos Capital Management has reportedly been arrested for deceiving Wall Street banks about his holdings.

The market

US Equity Futures ES00,
+0.19%

NQ00,
-0.04%
spiked higher after the 2.8% drop in the S&P 500 SPX,
-2.81%
on Tuesday, sending the index down 13% from its record high at the start of the year.

The 10-year Treasury yield TMUBMUSD10Y,
2.759%
slipped to 2.74%. EURUSD euro,
-0.92%
reached a new five-year low against the dollar.

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