In a piece for MarketWatch, Howard Gold writes that investors may suffer some 2008-style losses in “safe bonds” if yields continue to rise and bond prices fall.
The yield on the 10-year Treasury closed at about 2.20% on Wednesday, up from its all-time closing low of 1.36% in July. Since bond prices drop when yields rise, he writes, people with longer-term bonds have taken a big hit.
“The typical investor today has never experienced a sustained rising-rate environment and they are emotionally and historically unprepared for what happens when interest rates go up 3% or 5%,” said [Ric Edelman, executive chairman of Edelman Financial Services], in a telephone interview this week.
Millions of Americans, he observed, “are engaging in a variety of risky behaviors, often without knowing what they’re doing. They’re setting themselves up to lose a lot of money over the next several years, perhaps as much as they lost in 2008 in stocks.”
“You could see 20%, 30%, 40% losses in the bond market over the next several years,” he continued, “and the people who are most exposed to it are retirees trying to live on their income. The people who are the least able to handle it financially are the ones most likely to suffer.”