≈ Bonds. Long-term Bonds.≈
The threat of rising rates has been hanging over stocks for months now. Some say it’s much ado about nothing, and others contend it’s a peril that demands attention. How it impacts you depends in large part on what assets you own.
To be clear, short-term interest rates haven’t budged, and if the Fed is to be believed, they won’t budge until 2023. But long-term rates? They’ve climbed considerably. You can see this by viewing bond yields. The 30-day bond yield dropped below 1% last March during the worst part of the bear market. Since then, they’ve rocketed back to 2.4%.
That may not seem like much on an absolute basis, but percentage-wise, it’s enormous. The asset that’s suffered the most as rates have taken flight is long-term bonds. You can chart them using the ticker TLT.
As shown in the lower panel of the Chart of the Day, Long-dated Treasuries are experiencing their largest drawdown in decades by falling over 20%. Remember, these are stodgy old bonds we’re talking about here, not high-flying momentum stocks.
The lesson from this particular episode is clear: long-term bonds have a ton of interest rate risk.
Chart of the Day
Welcome to the Largest Drawdown in Decades
Long-term Treasury Bonds have fallen over 20% from their peak, making this the largest drawdown in decades. Rising rates are the cause. Let’s hope you didn’t own long-duration bonds in size in your passive retirement accounts.
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