Fearing Rising Rates? History Doesn’t Always Repeat - Context

Today’s period of rising rates is unlike some prior rising-rate cycles, when the Fed hiked unexpectedly and aggressively. Those kinds of rate hikes can be a painful experience for bond investors. But today’s cycle is slow, steady and well telegraphed. From that, bond investors can take comfort.

In the mid-1990s, for example, surging inflation led to a behind-closed-doors Fed decision to engage in a series of surprising and rapid rate increases that shocked the market. Three hundred basis points of tightening in a little over one year crushed bond returns.

In contrast, however, today’s cycle is slow, steady and incredibly well signaled—much like the period from 2004 through 2006, which saw positive returns across fixed-income sectors. And although there are some differences between today and 12 years ago, including the gradual unwinding of quantitative easing, we don’t see any reason to be alarmed.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.