Why lessons from 2004 suggest reasons for optimism on bonds

Impact of Fed policy

Pinebridge Investments' Robert Vanden Assem and Jonathan Davis take a closer look at the impact of previous Federal Reserve interest rate rise cycles on bond markets.

Conventional wisdom suggests that bond markets are poised for a correction, but the lessons of 2004 suggest reasons for optimism.  While the relatively benign tightening of the past few years has little in common with previous rate hike cycles, that may change in 2017.  Although the Fed's expected long-term rate is significantly lower than that from the previous rate hike cycle (3% versus 5.25%), the five hikes announced from June 2004 through the end of the year are not far from the Federal Reserve's current forecast of three hikes in 2017, which the market does not expect to begin u...