US Bond Market: September a 'Bloodbath', October a 'Shock'?

▲ US Federal Reserve (Fed), Bond Market/AI Generated Image

The US bond market experienced a record price collapse in September. Considering historical statistics and macroeconomic trends, gloomy warnings are emerging that the bond market's bleeding could deepen further in October.

According to MarketWatch, a US economic news outlet, on September 30 (local time), the bond market in September saw a continued surge in treasury yields, inflicting massive paper losses on investors. If past trends repeat, the upcoming October is likely to be an even harsher month for bond investors. The iShares Core U.S. Aggregate Bond ETF (AGG), a representative exchange-traded fund (ETF) that tracks the US aggregate bond market, recorded consecutive declines in September and October across 2016, 2018, 2020, 2021, 2022, and 2023.

Looking at the long-term monthly average returns of the Bloomberg US Aggregate Bond Total Return Index, compiled by Dow Jones Market Data and FactSet, from January 2000 to September 2026, October recorded an average return of -0.11%, ranking 12th, or last, among all months of the year. This indicates a recurring pattern where bond selling intensifies seasonally each autumn, causing returns to plummet into negative territory.

Guy LeBas, a bond strategist at Janney Montgomery Scott, stated, “While investors should not be overly fixated on simple seasonal signals, the key takeaway from the bond market's momentum data is that long-term changes in the economic environment can persist for several months.” He explained that the US government's enormous fiscal deficit risk and inflationary pressures have been gradually accumulating and are now beginning to be fully reflected in prices.

As bond yields soar, asset management firms are receiving an increasing number of inquiries from high-net-worth individuals seeking high-yield opportunities. Andrew Krei, Chief Investment Officer (CIO) at wealth management firm Crescent Grove, stated, “After the stock market's strong rally, investors are increasingly perceiving the 5%, 6%, and 7% yields offered in the bond market as attractive opportunities.” The calculation is that high coupon interest can partially hedge against potential book losses if interest rates rise further in the future.

Experts analyzed that additional upward pressure on bond yields remains valid as long as the structural fiscal deficit burden and the Federal Reserve's (Fed) monetary policy uncertainty persist. Their advice is to conservatively manage bond portfolios by confirming whether long-term macroeconomic trends are shifting, rather than betting on short-term rebounds.

[Article Key Summary]

-Following the bond market's collapse in September, warnings have emerged that further price declines could intensify in October.

-Since 2000, the average monthly return for US aggregate bonds in October has been -0.11%, ranking 12th (the lowest) for the year.

-Inquiries aiming for 5-7% yields have increased due to soaring interest rates, but the fiscal deficit and tightening monetary policy are considered hidden risks.

*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*