global bonds are in their first bear market of the past 30 years a product of the relatively swift climb in interest rates backed by inflationfighting central bankers across much of the world which is reversing decades of easymonetary stances   persistently high inflation unleashed by the covid19 pandemic around the world is the biggest reason why the ordinarily safe sector of fixed income has fallen into such a rut the bloomberg global aggregate total return index is 20 off its 2021 peak meanwhile european government bonds just had their worst month on record according to mark haefele chief investment officer at ubs global wealth management  most major central banks with the exception of japan’s are being pressured to lift borrowing costs with speed wall street’s biggest banks expect the european central bank to hike rates next week by an aggressive 75 basis points while the bank of canada delivered a surprise 100basis point hike in july and is anticipated to push borrowing costs into restrictive territory soon in the us policy makers have already delivered two 75basispoint hikes and traders see a betterthannot chance of a third on sept 21  higher policy rates in conjunction with rising marketbased nominal and inflationadjusted yields pressure equity markets because investors rely on rates to determine the value of risk assets across the globe what’s more central banks are not yet done with their campaign of higher rates creating continued turmoil across assets  read bonds enter first bear market in at least 30 years and era of ‘great volatility’ may be arriving as central banks turn forceful stocks head into worst month of year “we got to this point through bad centralbank policy over multiple decades” said gregory faranello head of us rates at brokerdealer amerivet securities in new york “it’s a global phenomenon not just in the us we’ve had negative interestrate policy in europe for a long time and a lot of central banks buying negativeyielding assets and that’s collided with an inflation environment we haven’t seen in a very long time that collision happened very abruptly and is being exacerbated by the war in ukraine creating a onceinalifetime turn in inflation”  bonds are the asset class that gets hit hardest by inflation which eats into investors’ fixed returns as investors sell off bonds their prices drop and yields go higher the policysensitive 2year treasury yield tmubmusd02y  for example is not far from its 15year high the 10year yield tmubmusd10y is up by more than 150 basis points from its january low while the 30year rate tmubmusd30y is up by almost 200 basis points as of friday afternoon  the bloomberg global aggregate total return index which includes government and investmentgrade corporate bonds has dropped 20 from its peak the biggest drawdown since its inception in 1990 that meets the definition of a bear market which is usually seen as a loss of at least 20 from a previous peak   “central bank policies were not aligned with an environment where inflation would rear its head as significantly as it has and that in itself has caught the bond market off guard” amerivet’s faranello said via phone on friday “had policies been more aligned with economic fundamentals over time and this inflation pocket hit we wouldn’t see the level or magnitude of what we’re seeing now” he said “when central banks increase rates this dramatically it certainly has a very profound impact on how risk assets are valued and we have seen a fairly decent repricing of risk assets just on interest rates moving the way they have”  us stocks have already suffered in 2022 with the largecap benchmark sp 500 spx tumbling into a bear market as federal reserve officials lifted the target on their main policy rate to a range between 225 and 25 from almost zero dow industrials djia dropped by almost 5563 points or 153 over the first two quarters the worst performance since the us outbreak of covid19 in early 2020 while the sp 500 dropped 206 in the first half and nasdaq composite comp fell 295 during the same period   as of friday afternoon all three major indexes were headed lower after initial gains following the august us jobs report faded fedfunds futures traders still see a morethan50 chance that the fed could lift rates to between 375 to 4 by december  the past year’s selloff in bonds has been offset from time to time by continued interest from buyers despite the risk of higher rates and a slowdown in economic growth that was the case on friday with treasurys which remain an investment of choice for many investors particularly with 6month through 30year yields all still above 3  the next set of questions for traders and investors will be how much further central bankers will go from here how long they’ll keep rates high and how much borrowing costs will continue to affect the cost of capital and undermine the performance of risk assets   those hurt the most by the bear market in global bonds are investors who “have been investing in fixed income structurally and were forced to buy negativeyielding debt” said faranello a trader and strategist “but the yield environment for investors who have been patiently sitting on the sidelines is a very good opportunity to get involved” in one chart 2022 has been the worst year for markets so far in at least 50 years  indeed ubs global wealth’s haefele said in a note that while “bonds have not been a great diversifier this year prospects look better from here”  “history suggests that fixed income is set to resume its traditional role as a diversifier” haefele said in addition “we have seen a number of privateequity managers taking advantage of the recent market correction in public markets to take companies private” see a rare selloff for both stocks and bonds slammed investors will the 6040 portfolio survive “while the combination of falling bonds and equities can be disorienting for investors we advise against sitting on the sidelines” he said “by being active and selective investors can both improve diversification and set up a portfolio for longerterm gains”