Q1 2022 Was Historically Bad For Fixed Income

Look beyond the headlines to discover the driving forces behind market trends and consider how they impact a credit union’s investment portfolio.

Top-Level Takeaways

  • It was a historically bad quarter for fixed income as the market repriced for a much more aggressive Federal Reserve to combat the highest inflation readings since the early 1980s.
  • There are multiple sources of uncertainty weighing on financial markets, and all tie back to an uncertain course of inflation.
  • Fed Chair Powell unveiled an economic metric that is causing unease for policymakers — the number of job openings relative to total unemployed persons.


That’s an appropriate description of the historically poor fixed income performance in the first quarter of 2022. Inflation readings have risen to four-decade highs, resulting in a barrage of higher rates, wider spreads, and a surge in rate volatility in anticipation of a much more aggressive Fed to combat these price pressures. Consequently, the ICE BofA US Broad Market Index (investment-grade fixed income) generated a -6.05% return in Q1, the worst quarterly figure since 1980.

March was particularly bad, with front-end Treasury yields up as much 93 basis points (bps) over the month, and the broad market index posting a -2.8% return, the sixth worst monthly return since the index’s inception in 1976. Of the 10 worst performance quarters on record, only twice did the index generate a negative return in the following quarter (Q4 1979/Q1 1980 and Q1 1994/Q2 1994).

At the root of the poor performance in bond markets are the following sources of economic and market uncertainty:

  1. The course of inflation.
  2. The Fed’s response to inflation risks.
  3. Russia/Ukraine conflict.
  4. Covid.

This market commentary is provided by ALM First Financial Advisors, LLC, the investment advisor for Trust for Credit Unions. Visit trustcu.com to read about the latest economic data and overall market trends.

April 18, 2022

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