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9 Charts: Dangerous Curves

By Sloane Ortel

The prospect of rising interest rates has been discussed for long enough that every investor on earth ought to be ready by now.

Of course, that's not exactly how it works.

To many in the market, bonds play a nearly sacred role. They are volatility dampeners in chief, tapped into a portfolio for their ability to mitigate occasional stock market jitters. Whatever else one thinks about them, their contractual interest and principal payments make them a nice asset to have around in a risk-off moment.

At least, that used to be the case.

Last week, Michael Batnick, CFA, described the regime change we've been seeing so far this year:

"in the 8 days that the S&P 500 fell at least 0.5%, bonds declined in all but 1 of those days. I would expect this number to come down as the year goes on, but finishing above 50% would not be unprecedented. In 1999, stocks fell at least 0.5% 79 times, and bonds fell 48 of those 79 days."

So: What's Happening?

There's only one place to start: The interest rate environment has materially evolved.

As I listened to Ben Bernanke interview Janet Yellen recently, it was hard not to see their era in sepia tones. Things have definitely changed.

We're worried about the economy being too good now. Not, like, ending. As was the fear for a stretch of Mr. Bernanke's tenure.

And that means it's time to hike.

The market seems to have noticed this slight difference in the tone of their successor at the US Federal Reserve, Jerome Powell.

Did I say "market"? I meant markets.

The outlook doesn't seem so great for bond prices, and they haven't looked this good as a financing alternative in more than a decade.

If these agreeable conditions persist, one

This article was written by

CFA Institute is a global community of more than 100,000 investment professionals working to build an investment industry where investors’ interests come first, financial markets function at their best, and economies grow.

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Comments (1)

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Interesting article and insight....thank you...
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