Biggest Bond Drawdown In History Imperils Everything

Last week, I talked at some length about the purported death of the four-decade bond bull market. We, as a community of people fascinated by, and engaged in, capital markets, write this obituary all the time. And whenever we do, it ends up being premature. It's always the same. Analysts read the bull's last rites, the time of death is announced, then the financial media lowers the coffin and shovels in the dirt. Everyone says their polite goodbyes, and a few lonely deflationists linger, graves

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5 thoughts on “Biggest Bond Drawdown In History Imperils Everything

  1. “Given it’s the bedrock of almost all basic balanced portfolios (not to mention serving as the key underlying assumption for many not-so-basic strategies)”

    The 60/40 rubric is also embedded in some compliance and regulatory expectations for “prudent fiduciary” and in some performance benchmarks. For certain types of professional manager, it is likely safer to stick with some variant of 60% stocks / 40% bonds than to go off the reservation, e.g. to 75% stocks / 25% commodities-gold-crypto-private debt-whathaveyou.

      1. You have a good point here I hadn’t thought about. A big assumption in optimal portfolio theory is that the risk-free interest rate is relatively stable.

        A rapidly increasing interest rate will force optimal portfolios to de-allocate from assets in large chunks every rebalancing period.

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