Thursday, June 13, 2013

the Bond movie

Bonds have been in a 30-year bull market, so even some of the most grizzled professionals haven't experienced a prolonged period of pain. But history doesn't forget. The bond market has been here before. And it didn't end well.

Interest rates were kept incredibly low in the 1940s and 1950s to help manage the national debt after World 2. Ten-year Treasury bonds yield almost the exact same today as they did in 1950.

What happened to Treasuries after that? Those who held to maturity received their principal back. But inflation eroded all of the value of interest payments, and then some. And as interest rates rose in the 1970s, the value of existing bonds plunged. The result in real (inflation-adjusted) terms was three decades of sheer misery

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