In 2021 interest rates started to trend higher with the fear of inflation and concerns the Federal Reserve may have to move the Fed Funds rate higher during 2022. On January 1st 2022, futures were pricing in 3 rate hikes or a 0.75% increase in the Fed Funds rate. As CPI data showed higher levels of inflation than expected the Fed was quick to raise the Fed Funds rate and when the dust settled, we ended 2022 with the Fed Funds rate at 4.50%. We continue to see the effects of these rate hikes and CPI readings continue to indicate a dampening level of inflation. We still believe by the time we fully see the impact of all these rate hikes, the Fed may have raised rates too far stalling the economy and will be forced to cut rates in 2023 to promote economic growth.
While the Federal Reserve continued their rate hikes pushing short term rates higher, the 10-year Treasury started to plateau ending the year at 3.87%. The 2-year Treasury ended the year at 4.42% further amplifying the yield curve inversion, the current spread between the 2 and 10-year treasury sits at -0.55%.
Over the last 45 years investors in the Bloomberg Barclays Aggregate Bond index have seen 5 years of negative calendar year returns, none worse than the -13% return we realized in 2022. This marks the second consecutive year of negative returns for bond investors. While bond investments have struggled over the past two years, this provides an opportunity for bond investors increasing future income and potential returns. As you would expect the increase in interest rates have made their way to cash equivalents, and money markets. Rates on money markets have surpassed 4% for the first time since 2008. If the Fed is successful in their fight against inflation, we may actually see a real return in money markets. With continued economic uncertainty and a Fed set on slowing inflation we have increased our cash position, awaiting additional clarity from the Fed and financial markets.
Similar to the stock market, there was nowhere to hide in the bond market. Every major bond index was negative in 2022, with long term treasuries being hit the most, down over 29%. Coming into 2022 we had shorter than benchmark average maturity avoiding some of the losses we saw in 2022, we started looking for opportunities to lengthen our maturities in mid-2022. As I have mentioned in the past few investment bulletins credit spreads widened in 2022. At the beginning of the year high yield credit spreads started at 2.82% and ended the year at 4.69%. These spreads narrowed in the 4th quarter of the year as signs of inflation and a potential recession dampened.
Over the year we took advantage of rising rates and widening yield spreads, increasing our exposure to high yield bonds, and lengthening our duration. We continue to look for opportunity to increase our credit risk and lengthen our duration even further. The most recent moves by the Fed have started to show signs of slowing inflation further supporting the moves we made in 2022. The risk we now have to monitor is a resurgence of inflation that could cause the Fed to raise rates even further. As always, we are paying attention to the signals provided by the Fed and look to take advantage of opportunities in the bond market.