Bond Thoughts - III

| March 20, 2018
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Tomorrow the Federal Reserve will most likely raise interest rates by 0.25% as it continues to tighten monetary conditions.

This will be the sixth rate increase since the Fed lowered rates to zero during the Global Financial Crisis.

With that said, many clients wisely ask about the risk of higher interest rates and the effect on bonds held in their portfolios.

While each cycle is different I want to highlight actual data regarding what historically happened to high quality bonds when the Fed raises short-term interest rates.

This data ranges back to 1983 and covers the previous seven rate increase cycles.

During these seven distinct periods, the Bloomberg Barclays US Aggregate Index averaged a cumulative return of +3.92%.

Yes in two instances, bonds did lose money (1987 and 1994) and they may well again in this cycle.

However, the point is that it is not a certainty and it does not make sense to sell all of your bonds because of the potential for more Fed rate increases.


Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O


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