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Broken Pie Chart

Two Main Things People Get Wrong Comparing 1970’s Bonds in Rising Rate Environment to Potential Rise in Rates Today Show Summary:

Broadcast on:
13 Oct 2018

Welcome to the Broken Pie Chart Podcast Episode 9. In this episode Derek Moore discusses the relationship between bonds and interest rates. Plus, what everyone gets wrong when pointing to bond returns during the late seventies when interest rates were rising and how returns weren’t that bad. While we can’t predict where interest rates will go, we certainly can learn a lot about what drives bond market values regarding interest rates and how a spike in rates now would be different from the nineteen seventies version

Key  Takeaways:

  • • What is the inverse relationship between interest rates and bonds
  • • Explaining bond par value, coupon interest payments, payment frequency
  • • How much bond market values are impacted by changes up or down in interest rates
  • • Understanding how Macaulay Duration and Modified Duration can show how sensitive bonds are to changes in rates
  • • Examining article from New York Times February 1982 when 30 Year Treasury Bonds yielded nearly 15%
  • • What the media is missing when saying bonds returns during 1970 to 1982 period weren’t that bad?
  • • How higher coupon interest payments and lower modified duration buffered against larger losses in the seventies
  • • Nominal returns versus real returns when accounting for inflation
  • • How in the long run total returns from bonds are driven mostly by the coupon interest payments?
  • • Discussing present value of future interest payments regarding bond principle repayment risk.
  • • US Aggregate Bond Index AGG movement thus far in 2018

 

Mentioned  in  this  Episode:

 

 

Global Bond Yields http://www.wsj.com/mdc/public/page/2_3022-govtbonds.html

 

1982 New York Times Article Archive All Time High In Bond Yields https://www.nytimes.com/1982/02/05/business/record-set-on-30-year-us-bonds.html

 

Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk

 

US Aggregate Bond Index Returns vs S&P 500 Index Returns 1980-2017 https://www.thebalance.com/stocks-and-bonds-calendar-year-performance-1980-2013-417028

 

Current US Treasury Bond Yields as well as Modified Duration http://www.wsj.com/mdc/public/page/2_3022-bondmkt.html