Will Bonds Get Crushed with Rising Inflation?


There has been a lot of talk lately about the bond crisis and the potential for a correction.  J.P. Morgan created a chat that shows how various asset classes historically react in different types of inflationary environments.  Although the initial shock to bonds will create some pricing problems at the end of the day we believe that bonds will muddle through the rising interest rate environment in what we are referring to as a coupon fashion.  We believe bonds will be a coupon plus 1-2% outlook for the next 2-4 years.  We are starting to see the correlations of bonds to equities begin to widen which is a good thing when building strategies that are well diversified.  Remember in 2008 the correlations of bonds to equities were much tighter causing a correction on both sides of the isle.  At the end of the day an investment strategy is only as good as the asset class exposures and although golden days of bonds over the last 12 years might be behind us they will continue to provide diversity and protection in an overall strategy.

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