--- title: "2018: The State of the Bond Markets Part 3" description: 2018 State of Bond Markets image: https://1782947.hs-sites.com/hubfs/Blog%20Part%203%20Picture%201.png --- - [Login](http://investbcm.com/wp-login.php) - [Register](http://etf.investbcm.com/register) [![Beaumont_Logo_4C - powered by AIM](https://1782947.hs-sites.com/hs-fs/hubfs/Beaumont_Logo_4C%20-%20powered%20by%20AIM.png?width=429&height=254&name=Beaumont_Logo_4C%20-%20powered%20by%20AIM.png)](http://investbcm.com/) **A Bird's Eye View Blog** # 2018: The State of the Bond Markets Part 3 By:[David M. Haviland](http://1782947.hs-sites.com/author/david-m-haviland) | Date:Feb01, 2018 | [Category:](http://1782947.hs-sites.com) [Quantitative Easing](http://1782947.hs-sites.com/topic/quantitative-easing), [Federal Reserve](http://1782947.hs-sites.com/topic/federal-reserve), [Rate Hike Cycles](http://1782947.hs-sites.com/topic/rate-hike-cycles) In our last post for the [2018: The State of the Bond Markets Part 2](https://blog.investbcm.com/2018-state-of-bonds-part2) report, we reviewed where the U.S. economy stands as well as quantifying the government's total debt outstanding. The monetary stimulus that has been injected into our economy is larger than anything tried before, and we expressed our concerned that any hint of inflation may cause interest rates to rise rapidly due to this monetary stimulus leftover in the system.  ## Part 3: Impact of a Rise in Interest Rates   The chart below shows the potential impact of a 1% increase in interest rates across the yield curve. While not quite linear, we can estimate the potential losses of a 2% or 3% rate rise by multiplying the numbers above. Remember the Fed has already increased rates by 1 ¼% on the short end of the curve and with trillions of dollars of QE reversal, it’s reasonable to assume that rates are going to rise. The only questions are how far and how fast? What many don’t realize is that such a dramatic and sudden drop in bond prices could send shock waves through the bond and equity markets.   ![Blog Part 3 Picture 1.png](https://1782947.hs-sites.com/hs-fs/hubfs/Blog%20Part%203%20Picture%201.png?width=467&height=453&name=Blog%20Part%203%20Picture%201.png)   Finally, on the credit side, we are pleased to see that high-yield or junk bonds have had a remarkable run and are still enjoying market calmness and low yields. However, as the chart below shows, it may not take much in terms of industry default to expose this sector of the bond market as well.   ![Blog Part 3 Picture 2.png](https://1782947.hs-sites.com/hs-fs/hubfs/Blog%20Part%203%20Picture%202.png?width=519&height=357&name=Blog%20Part%203%20Picture%202.png) Note how yields rose rapidly and quickly with the bankruptcies due to the oil bust in 2015 and 2016. Now that we are experiencing what pundits are calling the “Brick & Mortar Meltdown”, will we see the same results?   ![Blog picture part 3 picture 3.png](https://1782947.hs-sites.com/hs-fs/hubfs/Blog%20picture%20part%203%20picture%203.png?width=393&height=307&name=Blog%20picture%20part%203%20picture%203.png)   Will online sales further derail the bonds creditworthiness of U.S. retailers? We at BCM learned long ago that making predictions over short periods of time can be a fool’s errand. We are not making a prediction as we truly do not know what the future will bring. However, it is prudent to look at long-term trends, it is prudent to pay attention to macroeconomic policies and events, and it is prudent to understand that the remarkable returns that the bond markets have enjoyed for decades may face the first serious headwind since most in the business can remember. Perhaps it is time to review your portfolio’s bond duration and credit exposures to prevent any unwanted surprises.      [![Full Version 2018: The State of the Bond Markets](https://no-cache.hubspot.com/cta/default/1782947/e88e094c-1ebd-4797-a6d4-4c71611f5581.png)](https://cta-redirect.hubspot.com/cta/redirect/1782947/e88e094c-1ebd-4797-a6d4-4c71611f5581)   [![Share on Facebook](https://static.hubspot.com/final/img/common/icons/social/facebook-24x24.png)](http://www.facebook.com/share.php?u=http%3A%2F%2F1782947.hs-sites.com%2F2018-state-of-bonds-part3%3Futm_medium%3Dsocial%26utm_source%3Dfacebook) [![Share on LinkedIn](https://static.hubspot.com/final/img/common/icons/social/linkedin-24x24.png)](http://www.linkedin.com/shareArticle?mini=true&url=http%3A%2F%2F1782947.hs-sites.com%2F2018-state-of-bonds-part3%3Futm_medium%3Dsocial%26utm_source%3Dlinkedin) [![Share on Twitter](https://static.hubspot.com/final/img/common/icons/social/twitter-24x24.png)](https://twitter.com/intent/tweet?original_referer=http%3A%2F%2F1782947.hs-sites.com%2F2018-state-of-bonds-part3%3Futm_medium%3Dsocial%26utm_source%3Dtwitter&url=http%3A%2F%2F1782947.hs-sites.com%2F2018-state-of-bonds-part3%3Futm_medium%3Dsocial%26utm_source%3Dtwitter&source=tweetbutton&text=2018%3A%20The%20State%20of%20the%20Bond%20Markets%20Part%203) [![Share on Email](https://static.hubspot.com/final/img/common/icons/social/email-24x24.png)](mailto:?subject=Check%20out%20http%3A%2F%2F1782947.hs-sites.com%2F2018-state-of-bonds-part3%3Futm_medium%3Dsocial%26utm_source%3Demail%20&body=Check%20out%20http%3A%2F%2F1782947.hs-sites.com%2F2018-state-of-bonds-part3%3Futm_medium%3Dsocial%26utm_source%3Demail) ### Subscribe to Email Updates ![Beaumont_Logo_powered by AIM white](https://1782947.hs-sites.com/hs-fs/hubfs/Beaumont_Logo_powered%20by%20AIM%20white.png?width=820&height=482&name=Beaumont_Logo_powered%20by%20AIM%20white.png)   Firm Information - [About BCM](https://investbcm.com/firm-overview) - [Contact Us](https://investbcm.com/contact-us/) - [Press Inquiries](mailto:marketing@investbcm.com) - [Disclosure](https://investbcm.com/disclosures/) - [Privacy Policy](https://investbcm.com/disclosures/privacy-policy/) - [ADV](https://investbcm.com/disclosures/adv/) Investment Solutions - [Decathlon](https://investbcm.com/strategies/decathlon) - [Javelin Market Neutral](https://investbcm.com/strategies/javelin) - [Sector Rotation](https://investbcm.com/strategies/sector-rotation) Subscribe to the BCM Blog – **A Bird’s Eye View** for timely content - - Copyright © 2024 [Beaumont Capital Management](https://investbcm.com/) [mailto:salessupport@investBCM.com](mailto:salessupport@investBCM.com)