The benchmark bond index that we follow, Barclays U.S. Government/Credit Index, lost 2.5%, the worst quarter since 1994. In fact the quarterly result has only been worse 8 times in the past 40+ years (162 quarters).
The Barclays U.S. TIPS Index had its worst quarter ever losing 7.1% (data only goes back to 1997).
Markets do not like surprises – even when the information is not really a surprise. The financial media has dubbed it the Taper Tantrum, which started when Ben Bernanke came out of the Fed’s June meeting and said the Fed would taper its purchases of long-term bonds, if the economy continues to improve. The so-called quantitative easing program was intended to hold down long-term interest rates to encourage investment, lending, and economic growth.
The market was surprised by Bernanke’s comments, and long-term interest rates immediately jumped.
Morningstar recently reported, “Over the past two-plus weeks, many bond investors have headed for the exits, on the heels of Federal Reserve Bank chairman Ben Bernanke disclosing plans to end quantitative easing.” This suggests that market participants were assuming the Fed would continue its bond buying indefinitely.
Two things strike me as very ironic:
There is little doubt that markets will continue to be volatile as the Fed proceeds to unwind the unprecedented monetary policy currently in place. Market participants will try to predict what is going to happen (interest rates will rise – that’s easy); when it is going to happen (more difficult); and how to take advantage (approaching impossible).
There has been a general consensus that interest rates must rise since the Fed took short-term rates to zero at the end of 2008. Since January 2009 the bond index has provided an annual return of 4.8%, including the most recent quarter, while money market funds and short-term CDs have provided almost no return. Once again illustrating our long-held beliefs:
Other articles filed under Family Finances
January 23, 2017
Stock Markets While markets were down early in the quarter, most, but not all, have bounced back since the Election with small company stocks and value stocks leading the way. Stocks traded in international markets and emerging markets have not...
January 17, 2017
There is much talk and concern about increasing interest rates, which will not be good for bond performance. Below are responses to some of the specific questions we have received from clients. Q: Why have interest rates increased since the...
January 13, 2017
In 2016, Rockbridge welcomed 145 new families to our community of clients. We ended the year helping clients manage $552 million of investment assets. This represents an increase of 12.4% over last year. We continue to evaluate our staffing to...
December 19, 2016
Markets in November The campaign is finally over and Donald Trump won. Markets respond to surprises and this result was one. Tuesday night I, along with many others, anticipated a starkly negative response. Yet, most, but not all, stocks went...
November 23, 2016
There are many things to consider when you are looking to hire a financial advisor, and many people are not sure which questions to ask. This article from Inc.com shares a few items to keep in mind when looking for...
Copyright © 2017 Rockbridge Investment Management - Syracuse, Binghamton, Watertown & Utica. All Rights Reserved. hv