Text me
(904) 707-8992

Mark DelPezzo
Toggle Menu
invest1.gif

Want More Information?

Rough Seas Ahead May 2015

 Like the last few hurricane seasons in the great state of Florida, the bond market has not had a bear market in quite a spell.  Like our dreaded season, we hear the forecast of 8 -10 storms and have been lulled to sleep by the good fortune over the past several years.  In my opinion, this describes most investment funds in the bond market on a global basis.  This is especially true for investors in ETF’s and mutual funds that do not have a stated maturity!  It has been a long time since rates have trended higher, so let’s start the discussion with a graph showing what happened in 1993 to 1995 and the impact on Treasury prices.  For this illustration, I will use a BB graph of an actual 20 year maturity US Treasury security price and yield. 

 BB graph of 20 year U.S. Treasury in time frame 1993-1995 (read graphs left to right)

As the treasury graph shows , the move in price was from the high point in October 1993 of 115 to the low point in November of 1994 of 90  – a negative decline in the price of the security of -22%!  This move down in price coincided with a rise in yields on the security of 2.25% or 225 basis points.  Over this time frame, the Federal Funds rate was raised from around 3% to 5.5% or 250 basis points.  This is one of the few times over the past 30 years that the Federal Reserve was in a rate raising mode.  Today’s investors need to be aware of the risks inherent in bonds and prepare now to navigate the coming storm!

Archives