8 Minute Read

Tackle Today: Bonds are Radioactive

March 8, 2021

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When rising rates kill bond investors

Traders,

We don’t pay too much attention to stodgy old bonds here at Tackle Trading, but Wall Street certainly does. Fixed-income investments (that’s fancy-speak for bonds) are a pillar of conventional asset allocation models. Their stability is the yin to stock’s volatile yang.

But they still have risk! Interest rate risk, to be exact. If you’re wondering about the drama surrounding rising bond yields (a synonym for interest rates), then look at the chart of the day below.

10-year U.S. Treasury bonds have fallen 27.7% since their peak, making this one of the worst bear markets in history. If you want to view the chart carnage, check out TLT. It tracks 20+year treasuries that have fared even worse than the 10-year. Imagine buying a bond for its measly 1.6% annual coupon (i.e., yield), only to see it fall 16% over three months.

Wait, did I just lose ten years’ worth of interest in a single quarter?

Yes, yes, you did.

Next time you see a boomer or long-term bondholder, hug them.

#TeamTackle

Programming Note. Bear Market Survival Guide will be held tonight at 8:30 EST and more information can be found here


Chart of the Day

Four Memorable Bond Bear Markets


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