Past investment performance is not an indicator of future results. And yet… This paper by Paul Schmelzing has started by providing long-term historical context to the current bond market environment and established the comparative length and intensity of the “bull market” in the risk-free rate originating in the early 1980s. In a second step, a selection of “reversal dynamics” in the 20th century have been investigated to distinguish different drivers of bond losses for investors. At a cumulative 36%, the inflation-driven bond market reversal of the 1960s left investors with the steepest, and most long-lasting losses. It is such a scenario which investors, therefore, should seek to understand best, amid some current signs that similar wage and inflation dynamics are potentially emerging in the United States.
