What Happens After The Bond Bull Market?
The 35 year bull market in bonds has seen rates on the U.S 10 year treasury fall from 15.32% in September, 1981 to a bottom of around 1.5% in July, 2016. The Federal Reserve has started to raise short term rates which will push up long term rates as well. The bond markets long bull market is finally at its end? The fall in treasury yields during the bond bull market has also corresponded with a fall in CPI inflation from 11% in September, 1981 to 1% in July, 2016. Treasury yields and CPI inflation have a fairly high degree of correlation over this time period with a correlation coefficient 0.63. If the bull market in bonds has ended, the bear market in inflation has likely ended as well. Alternative asset classes, such as commodities and gold as well as emerging markets will likely perform very well in a rising interest rate and inflationary environment. In fact, during the high inflation 70's, gold had a compound annual growth rate of 31% while S&P GSCI commodity index had a compound annual growth rate of 21%. Many of Profolio's tactical and strategic portfolios utilize alternative assets.
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