I write a lot about bear markets.
Here’s a random assortment of my greatest hits in recent years:
I focus on corrections, bear markets, and crashes because those are the truly important times for investors. Success as an investor comes from your actions during the bad times.
These pieces are all about the stock market because there haven’t been many downturns in the bond market historically. Bonds are boring, and they’re not as volatile as the stock market…most of the time.
The Fed took interest rates from 0% in the pandemic to 5% in a hurry as inflation accelerated:
As interest rates rise, bond prices fall. When rates rise quickly, bond prices fall quickly.
The Bloomberg Aggregate Bond Index is currently experiencing its largest drawdown since its inception in 1976 in terms of both magnitude and length of time:
At its nadir, the Agg was down more than 18%. It’s still down double-digits.
Other areas of the bond market are still in the midst of even worse drawdowns:
Zero coupon bonds, which are essentially long-duration bonds on steroids, are still down almost 60%. Long-term Treasuries are still down more than 40%. Even 7-10 year Treasuries are down 20%.
All of these numbers include interest but it’s even worse than it looks because inflation has taken another 20% or so off the top.
So why aren’t investors freaking out more?
Can you imagine if we were four years into a stock market crash and the losses were still in the 40-60% range?
There would be endless headlines in the financial media. Investors would be freaking out.
Yet bond investors seem relatively calm. Money is actually pouring into long-term Treasuries despite the route:
A lot of this has to do with investors positioning for lower rates that haven’t come
