• 12 hours Is A Massive Gold Rally On The Horizon?
  • 18 hours Can Tesla Really Produce A $25,000 Self-Driving Electric Car?
  • 2 days Gold Miners Brace For Seasonal Downturn
  • 2 days The Silver Plunge Continues
  • 3 days 7 COVID Vaccine Stocks To Plan Upside Moves
  • 3 days Rhodium Climbs Reaches Record Highs
  • 4 days Tesla Tumbles After Battery Day Fails To Impress
  • 4 days Three Energy ETFs To Watch This Decade
  • 5 days What To Do With $2 Trillion In Suspicious Bank Transactions?
  • 6 days How The Stock Market Predicts Electoral Victory
  • 6 days Tesla's "Battery Day" Could Deal A Blow To Cobalt Miners
  • 7 days New TikTok Deal Hopes To Bypass National Security Concerns
  • 7 days Where Will Gold Go From Here?
  • 8 days COVID-19 Is Fueling A Pastic Waste Crisis
  • 8 days Gold Output Set To Decline
  • 9 days Uber And Lyft Look To Go Electric
  • 10 days COVID-19 Is Crushing Palladium Demand
  • 11 days This ‘Once-Boring’ Tech Company Is Now Super Hot
  • 12 days Will Air-Based Protein Be Our Future Food?
  • 12 days Google Pledges To Go Carbon-Free By 2030
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Bond Prices in a Rising Rate Environment

JP Morgan Asset Management put out their Q3 2014 market outlook in which they discuss bond performance in a rising rate market. You should be aware of the key points they make.

In this table, JPM explains how a +/- 1% interest rate change would impact each of several types of bonds:

Prime Impact of a 1% Rise/Fall in Interest Rates

You can see that longer maturities have the greatest price reaction to rate changes; that floating rate loans have the lowest reaction to rate changes; and that the bond market in the aggregate has a roughly +/- 5.6% price sensitivity to a +/- 1% interest rate change. The average duration of that universe of bonds is about 5.6 years.

High yield bonds are bit less sensitive to rate changes than the aggregate bond index, and muni bonds are a bit more sensitive.

In the broadest sense, intermediate-term bonds might have a 1% upward rate change risk over the next year or two, while very short-term bonds might have a 1% to 2% upward rate change risk. Nobody really knows for sure.

This chart of the Treasury yield curve at different times may help with a feel for the potential rate changes.

US Treasury Yield Curve

Bottom line for us is that bonds have much more price risk than in the past few decades, because the long-term path of rates is likely up, as opposed to the long decline in rates from the early 1980s to the current era.

This chart shows you the downward yield path over 30+ years for 3-mo, 2-yr, 10-yr and 30-yr Treasuries.

downward yield path over 30+ years for 3-mo, 2-yr, 10-yr and 30-yr Treasuries

Those days are behind us, and a rise in rates and declines in issued bond prices are eventually in store.


Back to homepage

Leave a comment

Leave a comment