Expect the worst crash in bond markets in over seven decades

Strategists warn that the central banks' aggressive interest rate hikes could cause a big drop in stock prices.

According to reports, market strategists are expressing concern that the aggressive interest rate hikes being implemented by central banks could trigger a significant selloff.

Bloomberg reported over the weekend that Bank of America projections show that global government bonds are on track to have their worst year since 1949. This is because central banks are becoming more aggressive, which is causing losses to grow.

According to the report, the growing losses show how far the US Federal Reserve and other central banks have moved away from the monetary policies of the COVID pandemic, when they kept rates close to zero to keep their economies going. Investors are getting ready for the economy to slow down because the reversal has hurt everything from stock prices to oil prices.

After the government announced a huge plan to cut taxes, the value of the UK's five-year bonds fell the most since 1992 on Friday. US two-year Treasuries have been going down for 12 days in a row, which is the longest losing streak since at least 1976.

"The bottom line is that all those years of central bank interest rate suppression are gone," Peter Boockvar, chief investment officer at Bleakley Advisory Group, told the media outlet. "These bonds are traded like bonds from emerging markets, and the biggest financial bubble in the history of bubbles, that of sovereign bonds, continues to pop," he said.

On Wednesday, the Fed raised its policy rate range by 75 basis points, bringing it to 3.25%. This is the third increase in a row, and it suggests that there will be more increases after 4.5%.

"With more Fed rate hikes and quantitative tightening on the way, as well as the possibility of more government debt issuance in the future and fewer people buying Treasury bonds now, all of this adds up to higher rates," said Glen Capelo, managing director at Mischler Financial. "The 10-year yield is definitely going to get closer to 4%."

Bloomberg says that the next week could bring more volatility to the market due to the release of inflation data and speeches by Fed officials. It also says that the sale of new two-, five-, and seven-year Treasuries is likely to make these benchmarks more volatile.