How Long Will the Bond Bear Market Persist?

Bank of England base rate may have been at 0.5% for nearly five years but interest rates will rise in the next couple of years - what will happen to bond yields?

Morningstar 21 November, 2013 | 12:54AM

It is well-reported that the duration of a fixed interest security and magnitude of changes in interest rates can have a significant impact on that bond’s price. It is also worth noting, however, that a correlation can be found between the amount of time bond prices decline for and how long investors have to wait for interest rates to rise again. This chart represents the historical relationship between the starting bond yield when bond prices began to decline and the number of months it took to reach the trough of the market.

The illustration above was constructed using the past 25 largest downturns in the long-term government-bond market since 1926.

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