Evan Simonoff

The past isn ’ t always prologue when it comes to a falling interest rate environment .

HE CURRENT BULL MARKET IN BONDS HAS A TOUGH ACT to follow . After all , its predecessor lasted 40 years .

Yet Sir John Templeton ’ s famous analysis that bull markets in equities are “ born on pessimism , grown on skepticism , mature on optimism , and die on euphoria ,” may have some parallels in the fixed-income markets . No one expects a replay of the 1981-2022 downhill run that began with sky-high 15 % to 20 % interest rates in the early 1980s and fell to near zero or negative levels in some nations in the last decade .

Instead , some , like Robert Tipp , chief investment strategist and head of global bonds at PGIM Fixed Income , think the bond market is in the early innings of a bull market that is likely to look more normal than the previous marathon cycle . The Covid-19 pandemic and its aftermath , with the first serious burst of inflation in 40 years , prompted a reset of interest rates at a “ very reasonable ” level , rising above 4 %.

Some key rates , like the federal funds rate and the yield on 30-year Trea-

sury bonds , have actually gone further and topped 5 %. The fed funds rate stayed there for almost 14 months . For investors with long memories , the chance to lock in Treasury yields topping 5 % seemed like a flashback to another era .

Sudden and dramatic interest rate swings can cause investor behavior to shift . Near-zero rates in the previous decade acted as an aphrodisiac prompting Americans ’ love affair with stocks to bubble over while consigning bonds to the position of wallflower in most people ’ s portfolios .

Ever since the Fed began raising rates in early 2022 , people have begun noticing the yields on money market funds and CDs too — while they ’ ve been groan-

NOVEMBER 2024 | FINANCIAL ADVISOR MAGAZINE | 15