Chart o’ the Day: Interest Rate Risk Illustrated

The below chart comes to us from Altegris CIO Jack Rivkin’s excellent mid-year market update. It’s a reminder that if when interest rates do begin to rise, some areas of the bond market are likely to surprise investors who’ve been reaching on duration for that extra few bits of current yield. They may end up getting a harsh lesson in why total return is more important than current income.

Here’s Mr. Rivkin:

Historically, in a rising rate environment, different yield vehicles carry different degrees of risk. The table below provides a comparison of risk relative to a one percent increase in rates. Our suggestion is at this stage in the fixed income markets one should be moving holdings to the left, lowering duration.

Source:

The Mid-Year Update: An Eventful First Half. (Altegris)