TAILIEUCHUNG - When Bonds Fall: How Risky Are Bonds if Interest Rates Rise?

Thirty-one years ago the yield on corporate Aaa bonds reached its 100-year peak of . That date was in September, 1981, and rates for corporate bonds and . Treasuries have fallen ever since, with both rates resting near 100-year lows today. This trend can’t last forever of course, and today many bond investors are grappling with the notion of a rising interest rate environment. And because bondholders lose when rates rise, many are now wondering, how risky are bonds if interest rates rise? We’ll examine rate and bond price behavior over the last 90 years to look for lessons from the past | UL Welton I INVESTMENT CORPORATION I WELTON visual insight SERIES When Bonds Fall How Risky Are Bonds if Interest Rates Rise Thirty-one years ago the yield on corporate Aaa bonds reached its 100-year peak of . That date was in September 1981 and rates for corporate bonds and . Treasuries have fallen ever since with both rates resting near 100-year lows today. This trend can t last forever of course and today many bond investors are grappling with the notion of a rising interest rate environment. And because bondholders lose when rates rise many are now wondering how risky are bonds if interest rates rise We ll examine rate and bond price behavior over the last 90 years to look for lessons from the past. The following chart plots eight periods in which Aaa corporate bond rates rose or more and the ensuing calculated losses to bondholders. Despite a three-decade streak of generally falling rates it reminds us that rates can and do rise and that these periods can produce sharp losses for years even for investors in the highest quality Aaa corporate credits. 20 15 10 5 0 5 10 15 20 25 1920 1930 1940 1950 1960 1970 Figure 1 Bondholder Losses When Aaa Corporate Bond Rates Rose By or More1 15 MU 1 IK llfllihlll 24 1980 10 14 1990 2000 2010 Past performance is not necessarily indicative of future results. 1 Bond returns and corresponding drawdowns are calculated from published interest rates for the Moody s Seasoned Aaa Corporate Bond Yield Jan. 1919 - June 2012 . Source Moody s Corporation. The information contained herein is intended for Qualified Eligible Clients as defined in CFTC Regulation . This document is not a solicitation for investment. Such investment is only offered on the basis of information and representations made in the appropriate offering documentation. Past performance is not necessarily indicative of future results. No representation is being made that any investor will or is likely to achieve similar results. Futures .

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