The year 2022 marked a truly historic bust for the U.S. bond market. The question now is whether 2023 will produce any kind of meaningful rebound. … Investors were forced to repeatedly lift their expectations for how high the Federal Reserve would raise short-term interest rates to combat the worst inflation in decades. The sharp drop in bond prices was in many ways the dominant force in financial markets, driving borrowing costs higher and contributing to double-digit losses for stocks. Despite bonds’ 2022 drubbing and the criticism that the Fed has come under for being slow to act on inflation, investors, if anything, have been consistently more optimistic than the central bank. That continues today, with investors forecasting lower interest rates than the Fed—a divide that some analysts and traders say poses a significant risk of extending last year’s rout.
Source: Wall Street Journal
