You need to realize that before this most recent series of rate hikes we have had only three others in recent history that were distinguishable enough to use. We had the bubble burster that ended in 2000, a modest rate hike cycle that ended in 1995, and one that ended in 1989. Two precluded recessions and one came before the most massive bull market the world has ever seen. Before that we just a jumble of ups and downs mostly at an elevated rate all through the 70s and early 80s then it took up into the mid 80s for things to smooth out. And everything that happened before that I don’t consider to be relevant because too much has changed such as the influence of an increasingly global economy on bond yields.
I have found that in the six to nine months after the previously mentioned three undeniable rate hike cycles, 10yr Treasury yields fell (prices rose) all three times by 15% to 20%. Though the sample size is small I think it is still telling of an overwhelming economic factor at work and we will likely see a similar result over the next six to nine months. The main reason is because the bond markets will likely begin to anticipate the Fed reversing course, whether or not that turns out to be the case.
Pimco’s been betting on that since last year. Bill Gross was early. In the meantime he’s made regular TV appearances forecasting an economic slowdown and that the Fed would reverse course. He was saying last summer that he thought the Fed would start lowering rates at the end of last year. It’s important to realize that believing that prediction is good for his bond portfolios. So in my opinion, he’s as much a bias king as a bond king, right up there with commodity connoisseur Jim Rogers and oil tycoon T. Boone Pickens.