For the 2022 year end report, we have put together an interactive dashboard with data and charts on index returns, price returns (ex-coupon), issuance volume, largest deals and top gainers and losers. The report focuses on dollar bonds and has been divided into key categories – investment grade bonds, high yield bonds, perpetual/AT1 bonds and China real estate (carved out given the high volatility in their bonds).
Macro
2022 was a difficult year for bond investors to say the least with returns in deep negative territory. As global economies staged a recovery out of the pandemic-induced slowdown, major central banks reversed easy monetary policy to stem rising inflation. The US for instance saw CPI rising from 7% levels (well over the Fed’s target of 2%) at the start of the year to hit 40Y highs of 9.1% in June. In response, the Fed implemented seven rate hikes totaling 425bp to end the year at 4.25-4.50%, levels last seen pre-GFC in late 2007.
The rapid and aggressive rate hikes pushed the rate-sensitive 2Y Treasury yield ~350bp higher to 4.28% levels as of the time of this writing. However, lower long-term inflation expectations among other factors led to a lower increase of ~200bp on the 10Y Treasury, which has come down from highs of 4.23% in late-October to 3.69% levels currently. The Treasury curve has thus inverted with the 2s10s at near 40Y highs of -59bp, triggering warning bells of an impending recession. The animated chart below shows how the US Treasury curve has evolved through the year.
Looking into 2023, market participants are baking in another ~75bp of rate hikes based on the Fed’s latest dot plot that indicates an end-2023 Fed funds rate of 5.1%. As with most Fed projections, this is highly data-dependant and thus investors are closely watching for signs of a continued easing in the inflation print – November’s CPI came in softer-than-expected at 7.1% – and strength in the labor market – November’s Non-farm Payrolls came in stronger-than-expected at 261k with unemployment at 3.7%.
Unsurprisingly, 98% of dollar bonds in our universe ended the year in the red, with both investment grade bonds and high yield bonds ending the year lower.
Looking at the performance across geographies (in the interactive chart below), we can see that European bonds dropped the most in 2022, down 14.7%, followed by LatAm which was down 11.8%.
Global dollar bond issuance volumes in 2022 stood at $2.06tn, down 32% YoY and at its lowest in over a decade. This was majorly a function of the continuous rise in interest rates this year, where not all issuers were able to access debt capital markets at favorable rates. In particular, high yield issuers across all markets saw a sharp drop in deal volumes (scroll through to the 'High Yield' section for more details).
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