When the Bond Bear Market Really Hits, the Way People Talk Is Going to Change

The talk will go from "yield, yield, yield" to "price, price, price"

Things change when the bear shows up.

Daniel Acker/Bloomberg

Guest after guest on Bloomberg Surveillance mentions the ancient bond history of 1994. This was a moment of Fed and Street confusion that allowed for lower bond prices and higher yields.

A bond bear market is different: everyone speaks yield, yield, yield and then one day they wake up and talk price, price, price as in lower. Phone calls are made; bonds liquidated; cash is generated.

Below is a wonderful series: The Moody's BAA Index back to just after World War I signalling horrific periods of bond price decline. 1994 is a relative blip on the map. Fossils can recall the fun of the 1990s middle years, pre-tech boom.

The chart shows lesser-quality corporate bonds. The year 1994 brought a much greater collapse in the price of full-faith-and-credit paper such as U.S. Treasuries.

In every bear and bull market a great rule, across all asset classes, is to not just focus on one index or series. 

MOODCBAA Index (Moody's Bond Ind 2015-06-03 11-34-36

This is Moody's BAA Index back to 1919. It is shown semi-log to signal percent change in the yield and to compare any period to another.

MOODCBAA zoom Index (Moody's Bond Ind 2015-06-03 11-40-05

This is the same series zoomed-in showing the 1994 move to higher yields and lower bond prices. Compare and contrast with the modest move higher in yields in recent weeks.

But the fun of 1994 is a blip on the Moody's map and 2015's bond tantrumette is a blip compared to the higher-yield move of  1994.

Our guests have many opinions on wither bonds. My take is we are distant from the moment where retail and institutional holders of bills, notes and bonds look at the quarterly statement and scream, "Oh, the Humanity!"