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BlackRock, Vanguard: Treasuries Likely to Slide Again Next Year

The Bloomberg U.S. Treasury Index has generated a return of negative 2.5% in 2021, the first annual drop since 2013.
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The Treasury market has slumped this year, as the economic rebound and monetary tightening by the Federal Reserve have pushed interest rates higher.

And with the median forecast of Fed officials penciling in three rate hikes for next year, 2022 may turn out to be another downer for government bonds.

The Bloomberg U.S. Treasury Index has generated a return of negative 2.5% in 2021, the first annual drop since 2013. In data going back to 1974, the index has never slid two consecutive years. But that may be about to change.

Raging inflation could put upward pressure on interest rates. Consumer prices soared 6.8% in the 12 months through November, the biggest increase in 39 years.

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Both BlackRock and Vanguard Group are wary of Treasuries, Bloomberg reports.

“A repeat of 2021 is a reasonable expectation for Treasury market returns in 2022,” Jean Boivin, head of the BlackRock Investment Institute, the asset manager’s in-house think tank, told the news service.

“If inflation eases slowly from where it is at the moment, there is the risk of more downside performance in Treasuries next year.”

As for Vanguard, “Our base case for 2022 is that growth and risk assets hold up and the market gets comfortable with the idea that the Fed tightens after the first quarter,” senior portfolio manager Brian Quigley told Bloomberg.

“That is moderately bearish for Treasuries.” Quigley sees yields on 10-year notes rising toward 2%, from 1.5% recently.