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Mark Hulbert: Don't Dump Your Bonds When Interest Rates Rise
"It’s a no-brainer, right? Owning bonds is bad when interest rates are on the rise. Not so fast. A review of past rising-rate periods shows that bond investments performed surprisingly well." "Consider the performance from 1966 through 1981 of a portfolio of intermediate-term U.S. government bonds — those with five-year maturities.".......... "Yet, according to Ibbotson Associates data, such a portfolio produced a 5.8% annualized return in that period."
The author fails to mention the inflation rate during the 1966-1981 period in question. So we don't know if the 5-year Treasury performed "surprisingly well." Take for example a year in which inflation was 10%. In that year, a 5.8% return would be a terrible return, with a 4.2% negative real return, and loss of purchasing power.
During the period in question, there were some years with double digit inflation. Not sure that the author's points and conclusions are justified.
Comments
Not so fast.
A review of past rising-rate periods shows that bond investments performed surprisingly well."
"Consider the performance from 1966 through 1981 of a portfolio of intermediate-term U.S. government bonds — those with five-year maturities."..........
"Yet, according to Ibbotson Associates data, such a portfolio produced a 5.8% annualized return in that period."
The author fails to mention the inflation rate during the 1966-1981 period in question.
So we don't know if the 5-year Treasury performed "surprisingly well."
Take for example a year in which inflation was 10%. In that year, a 5.8% return would be a terrible return, with a 4.2% negative real return, and loss of purchasing power.
During the period in question, there were some years with double digit inflation. Not sure that the author's points and conclusions are justified.