From the Desk of Willie Delwiche.
2022 Sovereign Stress > 2008 Corporate Stress
The Chart:
The long-term Treasury Bond ETF (TLT) is currently in a drawdown of more than 40%. This exceeds the 35% drawdown that high yield bonds (HYG) experienced in 2008 during the financial crisis.
Why It Matters:
High yield bond yields are rising but spreads are not widening. That’s because sovereign yields are rising just as fast. That is a big difference between 2022 and 2008. It’s not just peripheral countries. We are seeing stress in the UK and we are seeing stress in Japan. We are also seeing it in the US, where yields are rising at their fastest pace in 40 years, yield curves are inverting and some Treasuries are trading at 50 cents on the dollar. It’s a risk off environment, but one in which risk off assets are leading the way lower.
