In the late 1970’s into the early 1980s, the Federal Reserve hiked the Federal Fund Rate from 4.75 percent to 20 percent. This was a time of double-digit inflation with skyrocketing oil prices. The ten-year Treasury yield soared to more than 15 percent.
It is important to remember that short-term and long-term rates do not always move in tandem. The type of bonds as well will not always move together. Inflation protected bonds for example, will react differently than lower rated “junk” bonds during times of rising rates. Some bond sectors are also more sensitive to rate increases than others (i.e. global bonds versus credit sectors). Over time, it has been difficult to predict exactly when interest rate changes will occur or what length or sector of bonds will be affected. For this reason, it is essential to make sure that the fixed income portion of your portfolio is well diversified, and remember past performance does not guarantee future results.
Mark S. Martel, CFP is a local independent investment advisor and principal with Martel Wealth Advisors Inc. He can be reached at 360-694-9940. U.S. Treasury and Federal Fund rates provided by the Federal Reserve.
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