Precedent · Monetary
Rate Shock (1994 / 2022)
2022–2023
A rapid monetary-tightening shock. 1994 (the "bond massacre") and 2022 (the fastest hiking cycle in forty years) both re-priced bonds, growth equities, and the yield curve in a matter of months. 2022 is the modern analogue: front-end rates from ~0% to ~5%, the deepest curve inversion since 1981.
The signature
Each variable's peak deviation from the pre-event baseline, with the curve shape, the lag before it moved, and how long the recovery ran.
| Variable | Peak deviation | Shape | Lag / Recovery | Confidence |
|---|---|---|---|---|
| High Yield OAS HY OAS ~3.5% → ~6% in 2022 | +130% | Spike | 60d lag · 300d | medium |
| 10Y–2Y Curve 2022: from +0.8 to ~−1.0, deepest inversion since 1981 | −150% | L | 30d lag · 540d | high |
| S&P 500 2022 bear; growth/long-duration hit hardest | −25% | U | 0d lag · 365d | high |
| Real GDP Shallow; two soft quarters, soft-landing debate | −1% | V | 90d lag · 270d | medium |
Methodology
Encoded against the pre-hike baseline. The signature is duration pain + curve inversion rather than a credit blowout: the 10Y–2Y spread inverts sharply and stays, equities fall ~25% (growth/long-duration worst), HY spreads widen moderately, and GDP only grazes contraction (the "soft landing" debate). Shapes: L (the sustained inversion), U (equities), spike (spreads).
What's different now
A rate shock's damage depends on where leverage sits and how fast the curve re-steepens. 2022 spared credit because corporate balance sheets had termed-out debt cheaply in 2020–21; a future shock hitting a more levered, shorter-dated corporate sector would propagate more like a credit event. Use for the duration + curve signature, and watch refinancing walls.