When Interest Rates Rise

On May 13, 1981, the three-month T-bill rate was 17.01%, when the Dow was under 1,000. During March 2013, three-month rates were 0.12%. When rates do begin to rise, whenever that may be, the over $30 trillion U.S. bond market may be in for a wild ride.

After several years of flat short-term rates, the Fed raised rates by 25 basis points six times over a 10-month period, beginning on February 4, 1994. This became known as the “bond massacre” as long-term bonds dropped ~ 9%; the stock market dropped 9% in a three-month period.