Biden's Bond-Market Bloodbath

Two self-imposed crises: Runaway Inflation and a Currency War

Biden tightens an economic vise upon America with his twin failures of rocketing inflation and concurrent dethroning of King Dollar as the world’s reserve currency. Of all the created crises of the Biden administration so far, these failures might well form the most lasting legacy of losing.

On the inflation front, the recent carnage in bonds has been nothing short of historic. This year’s fire-sale in debt markets that can rightly be termed Biden’s Bond Bloodbath. For fixed income, prices and yields move inversely. So, as bond prices trade lower, interest rates ratchet higher in tandem. In this present scenario, violently so.

For example, consider 30 Year US Treasury Bond prices during Biden’s tenure. For the 30 Year “Long Bond” issued in May of 2020, the Treasury bond selling in 2021 and 2022 has been so severe that investors have lost 1/3 of their principal, on an investment thought to be “safe paper.”

Looking beyond Treasury debt, the Biden inflation surge wreaks widespread havoc on Fixed Income markets. The Bloomberg “US Aggregate Index” of all American bonds has lost 9.5% already this year. As esteemed Bond market research guru Jim Bianco observes, “nothing remotely close like this has happened before.”

This chart, sourced from BiancoResearch.com, shows the carnage in historical context. 2022 is now on pace as the worst year ever for bonds, with even harsher selling than in 1980. Over a generation ago, that surge in inflation and interest rates led directly to Ronald Reagan’s electoral triumph over Jimmy Carter, and also to a deep early 1980s recession.

Stocks are admittedly more interesting to watch, but bond markets matter for more to most Americans. Equity valuations only really change the prosperity of the very wealthy, while the ramifications of interest rate moves are ubiquitous.