Bonds have been as close to a sure thing as there is in financial markets over the past four decades. Since 1982, the Bloomberg U.S. Aggregate Bond Index has only had four down years, and never back-to-back. Yet, after falling 1.54% last year, the benchmark is already down 1.62% in just the first few days of 2022. Might this be the end of the winning streak?
To answer that question, we need to understand that bond investors continue to forecast a hot economy that is poised to buckle under the strain of even limited interest-rate increases. That can be seen in the difference between short- and long-term bond rates, known as the yield curve, which is flattening as investors price in more Federal Reserve rate hikes this year.
