Assessing the Damage from Rising Rates

Interest-rates are on the rise. That drives previously-issued bond prices down. If the issuer doesn’t default, the damage is temporary, but uncomfortable nonetheless. So, how bad has the damage been?

This is how I structure my bond holdings (where ST Treasuries are considered ‘cash-equivalents’ and get put into a different bin).

50% ‘Defensive’ (triple-AAA’s to double-AA’s).

33% ‘Enterprising’ (single-A to triple-BBB).

17% ‘Speculative’ (double-BB or lower).

0% ‘Non-performing’ X (in default or BK).

The actual percentages achieved vary from account to account. But here’s one example, my account at IB.

Code Target As-Found Paid Value P/L
D 50% 16% $8,307 $6,822 -8%
E 33% 60% $68,914 $66,047 -4%
S 17% 21% $23,728 $23,770 0%
X 0% 3% $3,252 $671 -79%

Totals 100% 100% $114,201 $107,310 -6%

Comment: The better the credit-quality, the more impacted by interest-rates. Ditto the longer the duration.


What’s the CY on those holdings (by tranche, as a function of coupons received vs price paid)?

D, 4.0%
E, 5.6%
S, 7.2%
X, 0.0%

Not very impressive, right? compared to what pfds offer, or some ETFs.


There was a moment recently where some investment grade corporates went on sale, and by on sale I mean YTMs of 7+% over a 3-5 year timeframe. That moment has passed, the market has rallied, and now those issuers are up 4-5%.

I’m thinking this is temporary. Yield curves globally are now inverted. I’m looking for some fat pitches on the long end in the 9 month timeframe.

Thanks for the input, folks. Keep up the good work.