Over the last 25 years, there have been 8 periods where the 10-year treasury bond’s interest rate increased by more than 1%.
Four of these periods have occurred in the last 10 years – rising rate periods are nothing new.
There are many different type of bonds– just because rates are going up does not mean the bond’s performance has to go down. Analyzing different bond asset classes during these periods:
- Long term, 10-year treasury bonds historically have been the most interest rate sensitive bond with an average loss of 7.3%.
- The overall bond market on average has posted on slight losses (less than 1%).
- Corporate bonds, floating rate bonds and high yield bonds historically have produced positive returns during rising rate environments.
Bottom Line: Ignore the media, diversify your bond holdings, use tactical managers to help protect against interest rate and other risks. Stay the course.
Sources: Information gathered from the Federal Reserve Bank of St. Louis. Morningstar, Lord Abbet. Bond market is the Bloomberg Barclays U.S. Aggregate Bond Index. 10-Year Treasury Bond Index, ICE BofAML U.S. Corporate BBB-Rated 1-3 Year Index Bloomberg Barclays Index, BofAML U.S. High Yield Master II Constrained Index. This is not a recommendation. Past performance is not a guarantee of future performance.
* * * * * * * * * *
Jon Giordani is Chief Investment Officer for PSG. He provides innovative investment planning strategies to our clients.