Bonds have experienced substantial volatility since Covid-19. Back in March 2020, the 30-year US treasury yields fell below 1% for the first time in its history. With the high interventions from the central banks, bond yields have risen steadily, albeit mostly at the lower end. However, the longer end also began to increase and has passed the 5% mark for the first time since 2007, as shown in Figure 1. Nonetheless, this still has not shifted the yield curve back to a normal state, as the 3-month treasury bill is still yielding more at 5.63%. This development also caused the longest and steepest bear market in the bond ecosystem. Measured by the Bloomberg US Aggregate Bond Index, the bear market is now in its 38th month and has resulted in losses exceeding 17% in this time period. In conjunction with rising interest rates, mortgage rates also skyrocketed. 30-year fixed mortgage rates increased from 2.65% in 2020 to more than 7% currently, as shown in Figure 2. The last time, mortgage rates were at such levels was during the dot-com bubble. This has led to a substantial impact on the real estate market. With housing becoming that expensive, many people can no longer afford houses. Consequentially, in the US, mortgage applications have fallen to the lowest levels since 1995. Similarly, construction of apartment buildings also collapsed by more than 40%, which corresponds to the steepest fall since 2010. While financing costs are a significant contributor to this decline, it is also negatively affected by a relatively high vacancy rate and a decline in rent level, due to excess supply.
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