The benchmark bond index that we follow, Barclays U.S. Government/Credit Index, lost 2.5%, the worst quarter since 1994. In fact the quarterly result has only been worse 8 times in the past 40+ years (162 quarters).
The Barclays U.S. TIPS Index had its worst quarter ever losing 7.1% (data only goes back to 1997).
Markets do not like surprises – even when the information is not really a surprise. The financial media has dubbed it the Taper Tantrum, which started when Ben Bernanke came out of the Fed’s June meeting and said the Fed would taper its purchases of long-term bonds, if the economy continues to improve. The so-called quantitative easing program was intended to hold down long-term interest rates to encourage investment, lending, and economic growth.
The market was surprised by Bernanke’s comments, and long-term interest rates immediately jumped.
Morningstar recently reported, “Over the past two-plus weeks, many bond investors have headed for the exits, on the heels of Federal Reserve Bank chairman Ben Bernanke disclosing plans to end quantitative easing.” This suggests that market participants were assuming the Fed would continue its bond buying indefinitely.
Two things strike me as very ironic:
There is little doubt that markets will continue to be volatile as the Fed proceeds to unwind the unprecedented monetary policy currently in place. Market participants will try to predict what is going to happen (interest rates will rise – that’s easy); when it is going to happen (more difficult); and how to take advantage (approaching impossible).
There has been a general consensus that interest rates must rise since the Fed took short-term rates to zero at the end of 2008. Since January 2009 the bond index has provided an annual return of 4.8%, including the most recent quarter, while money market funds and short-term CDs have provided almost no return. Once again illustrating our long-held beliefs:
Other articles filed under Family Finances
May 11, 2016
The default investment option for the Lockheed Martin Salaried Savings Plan (SSP) and the Capital Accumulation Plan (CAP) is the managed Target Date funds. A Target Date fund is designed to capture the entire investment market in a single fund. ...
April 29, 2016
Lockheed Martin MST recently announced the upcoming Voluntary Layoff Program with the goal of reducing the divisional workforce by 1,500 employees. If you are considering retirement and are eligible for the Voluntary Layoff Program, it may make sense to deeply...
April 28, 2016
When evaluating a financial advisor, the most important factor is that they truly understand you as a person and your personal situation. At Rockbridge, we have a dedicated focus in working with clients that are employees of Lockheed Martin. Because...
April 14, 2016
Stock Markets After January’s rough start, stock markets bounced back nicely in March, bringing most numbers into the black for the quarter. Domestic Small Cap and International Developed Markets are the exception – down about 1.5% and 2%, respectively. Notice...
April 11, 2016
I will make the argument here: Most people would rather go to the dentist than get their estate documents (Living Will, Power of Attorney and Health Care Proxy) in order. Why? The dentist appointment usually only lasts an hour and...