Bond Market Struggles in 2022: The Role of Inflation Expectations

In 2022, the bond market was hit with the worst year on record, according to the Barclay’s U.S. Aggregate Bond Index. With inflation on the rise, the only way Central Banks were able to combat it was by increasing interest rates, which caused the value of bonds to suffer.[0] So why was the bond market so bad in 2022?

Inflation expectations were key in determining how bad the bond market was in 2022. According to the Cleveland Federal Reserve Bank’s Center for Inflation Research, expected U.S. inflation over the next 10 years was 2.27% per year.[1] Riskier bonds generally yield a higher rate of interest than conservative bonds, but government bonds are considered the safest investments.[2]

Bond rating agencies tend to assign a higher score to government bonds than corporate bonds. Additionally, larger companies with a strong cash flow will receive a better rating than smaller companies with limited cash flow.[3] The key is to focus on higher-rate bonds and not high-yield bonds, as the risk is usually higher.[2]

January’s Consumer Price Index (CPI) data showed that inflation may be more stubborn than some had hoped.[4] The Consumer Price Index was 6.4% higher than the same period last year, a decrease from the 6.5% seen[4] Additionally, food inflation remains high, and on a monthly basis, the CPI rose 0.5%, its fastest pace since October when it also rose 0.5%.[4]

Overall, 2022 was a difficult year for the bond market due to high inflation and rising interest rates. It is important to be aware of the risks involved when investing in bonds and to focus on higher-rate bonds rather than high-yield bonds.

0. “Can bonds bounce back in 2023?” The Armchair Trader, 13 Feb. 2023,

1. “Buying bonds now is a smart money move even if the Fed keeps hiking rates. Here’s why.” MarketWatch, 14 Feb. 2023,

2. “Martin Schram: Bad news — lost and found” The Pantagraph, 6 Feb. 2023,

3. “Why bonds are essential for your financial future” The Jerusalem Post, 15 Feb. 2023,

4. “You Can’t Control Interest Rates, but You Can Control What You Do About Them” The Motley Fool, 16 Feb. 2023,