As of April 12, 2022, the latest COT report does not yet point to any relief in the current carnage of bond markets.
There’s just a total reduction of exposure to bonds.
Both long and short bond positions are being reduced as institutions pull away from bond markets.
Looking at the 10-year bond chart $IEF, the carnage is apparent:
As the Federal Reserve hikes rates, the price of bonds falls, so that’s what we see in bond market charts. It was a big mistake for people to allow money managers to position them into bonds as a “defensive” portfolio allocation in Q4 of 2021. I was warning people last year that with the future rate hikes by the Fed, the price of bonds would fall, so bonds were not the place to be defensive with their money. Bonds have been riskier than stocks! I expect that will change over the coming months, but it’s best to stay away from bonds for now.
With the national debt at over $30 trillion, the Fed is limited in how far it can hike rates before crashing the economy as a more significant percentage of tax income has to go to interest payments on the debt.
The more money the U.S. has to spend on meeting its debt obligations as interest rates increase, the less financial capacity to fund programs focused on social welfare, veterans benefits, and transportation.
This breakdown of the 2019 Federal Budget from the Council on Foreign Relations shows how the budget pie is only so big, so when one area increases (like interest payments), another must decrease.
For this reason, many believe that the reason the economy takes a sharp downturn whenever the Fed attempts to hike rates is due to the national debt. Notice that since 2014, each time the Fed gets rates up to around 3%, they have to reverse course because the economy contracts sharply.
With the Federal Reserve jaw-boning interest rates higher, many believe that the economy can only handle two more rate hikes before the Federal Reserve is forced to lower interest rates again. On April 16, 2022, Peter Schiff gave an excellent analysis on bond markets and the subject of the economy turning down at around 3% in 2018.