Charts of the Year: Big Moments for Gilts, Crypto and the Dollar

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For most investors, 2022 has been a year to forget. The slump in stocks was bad enough, but with bonds also suffering from soaring inflation and an aggressive central bank response, fund managers often had nowhere to hide. Flinty hedge funds able to bet on the dollar and against public debt are among the few to celebrate a good year.

This year has also seen some truly extraordinary events, in areas as calm as UK government bonds and as wild as crypto. Here, Financial Times reporters have chosen their market charts of the year, summarizing the biggest moments and most powerful trends.

The bond market that turned

Soaring inflation and a global rise in interest rates have been a miserable year for bond investors.

The 16% drop in the Bloomberg World Bond Index, a broad gauge of sovereign and corporate debt, is the worst performance in data dating back to 1991, eclipsing all other relatively rare annual declines in fixed income over the past few years. last three decades.

At the start of 2022, investors and central bankers were still clinging to the idea that runaway inflation could be brought under control by relatively modest interest rate hikes. But the commodity price shock resulting from Russia’s invasion of Ukraine dashed those hopes. Inflation continued to surprise on the upside for most of the year, even as central banks in the US, UK and Eurozone embarked on one of the most stringent tightening cycles. fastest in history.

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The yield on the 10-year U.S. Treasury, a benchmark for global fixed-income securities, peaked at over 4.3% in October, after starting the year at around 1.5%, helping to fuel a decline in 20% of global equities. Yields have since fallen to 3.9% on signs of slowing US inflation. The latest data covering November show a decline at a relatively moderate annual rate of 7.1%, from a peak above 9% earlier in the year. But investors will be looking for further confirmation that price pressures are easing in the United States and elsewhere before calling an end to a sharp bond sell-off. Tommy Stubbington

The gilts have gone wild

Even in a year of unprecedented bond market volatility, the UK stood out. When Liz Truss, during her 44-day term as Prime Minister, proposed a $45 billion package of unfunded tax cuts in September, the government securities market crashed.

Investors were bewildered not only by the scale of the planned borrowing, which came on top of the huge bill for a widely anticipated household energy subsidy, but also by the decision to go ahead. without analysis by the official budget watchdog.

The price of gilts has crashed, sending yields skyrocketing. This in turn sparked a crisis in the UK pensions sector, where many so-called liability-driven funds had had their fill of leveraged bets on low returns and were in dire need of answering calls. of margin. As they dumped long-term bonds to raise needed cash, the UK government debt market entered a self-perpetuating downward spiral, according to the Bank of England, which was forced to intervene with a emergency bond purchase program. The swings in 30-year gilt yields on September 28, when the BoE first intervened, were larger on that day than seen in most years.

Calm only really returned to the gilding market with the resignation of Truss and the abandonment of his tax cuts by his successor Rishi Sunak. It was widely seen as a victory for so-called bond vigilantes in cracking down on a government that overstepped the bounds of responsible fiscal policy. Tommy Stubbington

NatGas: flamethrower

If there is one commodity that tells the story of 2022, it is natural gas, for which Europe has learned a hard lesson in energy geopolitics.

After relying on Russia for 40% of its gas before Vladimir Putin’s invasion of Ukraine, the EU’s scramble to replace supplies from Moscow has dominated all other markets.

Russian pressure on gas supplies began before the invasion as Moscow sought to soften Europe for what was to come. But it peaked this summer when exports on the key Nordstream 1 pipeline to Germany were cut off.

By August, prices had topped 300 per megawatt hour or more than $500 a barrel in oil terms, fueling a cost of living crisis, runaway inflation and even fears of economic collapse.

But the market worked. Europe has stockpiled enough gas to start the winter, sucking in endless shipments of liquefied natural gas while reducing demand. So far, there has been no real shortage. Prices remain very high compared to normal, but have more than halved since August.

Now worries are already shifting into next winter, with a big question mark over whether Europe can fill up storage again as Russian supplies are almost completely cut off. David Shepard

The big nickel pickle of the LMEs

Nickel is typically a commonplace commodity used in stainless steel with a sexy growth story for its use in electric vehicle batteries, but it grabbed headlines for all the wrong reasons in March.

The metal had been trading at an average of $15,000 a ton for years. But prices jumped 280% to more than $100,000 a ton in a single day as fears of sanctions against Russia, a major nickel producer, clashed with a bet on lower prices by Tsingshan, the largest stainless steel company in the world which has built extensive nickel projects in Indonesia.

The historic price increase led the London Metal Exchange to suspend and cancel billions of dollars of trade, triggering one of the biggest crises in the stock exchanges’ 145-year-old history, as participants who drew profit were seeking damages of nearly $500 million and the traders questioned. why nothing has been done sooner.

The full extent of the crisis was later revealed in LME’s defense of the lawsuits. Cash requirements for trading would have pushed clearing members out of business, leading to failure of the LME clearing house and even risking contagion in financial markets.

Since the trauma, traders have moved away from using the LME contract for nickel, which serves as a global benchmark for producers and sellers to strike deals. Low liquidity has led to a return to volatile price swings.

The nickel market mess is far from over, the LME will not find a quick fix to restore confidence in its contract and tarnished reputation. Harry Dempsey

When crypto is cracked

The cryptocurrency industry is suffering its own Lehman moment of asset price slippage and a daisy chain of defaults from overleveraged and often mismanaged market intermediaries. Biggest of all, of course, is the defunct FTX, whose founder Sam Bankman-Fried is now feeling the brunt of criminal and civil cases that could land him a century in prison. The foundations for this crisis were laid in the early days of cryptos, but the spark for the collapse came in May.

That’s when the brainchild of now-future Terraform Labs founder Do Kwon’s crypto terra token imploded. The so-called stablecoin was supposed to hold a solid valuation of $1 a coin under a scheme backed by algorithms and blind faith. But in May, its value crashed to zero and took large chunks of the crypto space with it, starting with its sister token luna.

An abbreviated history of what happened next includes the failure of crypto hedge fund Three Arrows Capital, which went into liquidation in June; Celsius Network (tagline: debank yourself), which filed for bankruptcy in July; and a host of other intermediaries who were, ironically, bailed out at the time by Bankman-Fried. Scott Chipolina

Year of the Dollar King

In a messy year for markets, one constant has been the US dollar, which hit a 20-year high in September against a basket of six other major currencies, a 26% ascent from May 2021 .

The dollar devastated a host of other currencies, including the euro, which fell to parity with the dollar in July, and the pound, which hit an all-time low after September’s disastrous mini-budget. The Chinese renminbi also hit its lowest point since 2007, while Japan broke with tradition and intervened heavily to bolster the yen which it has spent years trying to drive down, not up.

Support for the dollar came from investors looking for a safe haven to stash their money as rising inflation and Russia’s invasion of Ukraine hammered global financial markets.

Today, US inflation seems to be falling and so is the dollar. Slowing U.S. economic growth and rising expectations of a so-called Federal Reserve pivot to slower rate hikes or even cuts in 2023 are a recipe for a weaker dollar, says Kit Juckes, macro strategist at Societe Generale.

Others are not so sure. The greenback may have peaked, they argue, but that doesn’t mean it should continue falling next year.

According to Chris Turner, global head of markets at ING, our basic view is that central bank tightening in recessions will keep the dollar supported for a bit longer than expected. george steer

How the ruble fared

The Russian ruble has become an unlikely comeback child this year. It is stronger against the dollar today than it was before Russia launched its invasion of Ukraine, having rebounded from a sharp decline in the first weeks of March.

The currency first fell in value after the outbreak of war, falling to around 130 against the dollar in the days and weeks after Russia’s central bank more than doubled interest rates to 20% in late February to calm the country’s financial markets.

Its resurgence, however, does not reflect a wave of investment in Russia. Instead, Putin’s imposition of strict capital controls and lockdowns on foreign traders seeking to exit their investments helped the ruble recoup those losses in April.

The end of the year brought another period of ruble weakness, leaving the currency at 72 to the dollar. george steer

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