2017 – A Year of Turbulence But “The Good Times Are Coming” – Week 16

Bond Market

Rising interest rates are not good for the bond market. As interest rates rise, the value of lower interest rate bonds go down. Bond investors that purchased at the trough of interest rates in the summer of 2015 have seen the value of their bonds decrease.

The important thing to note is that the interest rates on US Treasuries in January of 2015 versus January of 2016 are almost the same. What we probably witnessed in 2016 was the bottom of the bond market, especially now that the Fed is once again raising interest rates and there are political leaders in Washington that want to see the economy grow.

The ripple effect of the bottoming of the interest rate market and the decline in prices of the existing bonds, are multi-fold. Some investors will have to sell other assets to cover losses if they have leveraged bond portfolios. These ripple effects will impact real estate values because the rate of return on real estate is compared to the returns on bonds.