Charts show the largest bond ETF is on track for its worst year in history: Market watcher

Bond prices have plummeted this year, sending yields to multiyear highs. If the pressure on Treasurys continues as expected, the market's largest bond ETF could surpass the drop seen in its worst year on record, says one market watcher.

"Anyone who is holding bonds this year is feeling some pain," Charlie Bilello, director of research at Pension Partners, told CNBC's "Trading Nation" on Thursday.

"If that trend continues, it will be the worst year for the largest bond ETF in the world – AGG. It would also be the worst year in history for the Barclays Aggregate bond index, which is the biggest bond index out there," he said.

The AGG U.S. Aggregate Bond ETF is down more than 3 percent for the year on an absolute basis, second worst to a 4 percent drop in 2013. Should the pace of losses continue as markets expect, it will quickly surpass that drop. Analysts expect a minimum of three Fed rates hikes and an increased supply of government bonds to keep pressure on prices this year.

On a total returns basis, the ETF is down 2.3 percent, its worst year since its inception in 2003.

"What's the good news, if anything, for bond investors here? Well, this move down in price means the move up in yields so if we're looking at forward bond returns over the next few years they should be better than the last few years," said Bilello.

Bond yields, which move inversely to price, have spiked in 2018. The yield on the 10-year Treasury bond is up 20 percent since the beginning of the year and hit a high of 3.1 percent last week in its highest level since mid-2011.

"As I like to say in the bond market, there's really no pain, no gain. The only path to higher returns for bonds is higher interest rates so in the short run that's going to hurt but in the long run, that'll be better for bond investors," added Bilello.

The yield on the 10-year eased back below 3 percent this week after the Fed indicated it might let inflation run above its 2 percent target without reactive rate hikes.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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