When Bonds Fall: How Risky Are Bonds if Interest Rates Rise?
Thirty-one years ago the yield on corporate Aaa bonds reached its 100-year peak of 15.5%. That date was in September, 1981, and rates for corporate bonds and U.S. Treasuries have fallen ever since, with both rates resting near 100-year lows today. This trend can’t last forever of course, and today many bond investors are grappling with the notion of a rising interest rate environment. And because bondholders lose when rates rise, many are now wondering, how risky are bonds if interest rates rise? We’ll examine rate and bond price behavior over the last 90 years to look for lessons from the past.