{"id":231499,"date":"2022-04-15T13:45:33","date_gmt":"2022-04-15T13:45:33","guid":{"rendered":"https:\/\/aptuscapitaladvisors.com\/?p=231499"},"modified":"2023-04-25T17:30:28","modified_gmt":"2023-04-25T17:30:28","slug":"its-all-the-same-only-the-rates-have-changed","status":"publish","type":"post","link":"https:\/\/aptuscapitaladvisors.com\/its-all-the-same-only-the-rates-have-changed\/","title":{"rendered":"It’s All the Same, Only the Rates Have Changed"},"content":{"rendered":"

Flashing back a year, when bonds felt a bit more alive than dead. Originally posted in our Content Hub last March<\/a> but the concepts remain important…<\/em><\/p>\n

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Rates Are Moving<\/strong><\/h5>\n

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Interest rates \u2013 just look at what the yield (the interest rate) of 10-year government bonds has done recently.\u00a0 The arrow is pointing to the start of 2021, starting below 1% and spiking over 1.5%.<\/p>\n

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Source: Bloomberg. Data as of 02.26.2021<\/p>\n

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Bond prices and interest rates carry an inverse relationship.\u00a0 Meaning, when rates go up, bond prices go down. Take a look at the table below showing total return of three types of bonds: Corporate bonds (LQD), the aggregate bond market (AGG), and long-term treasury bonds (TLT) have struggled year to date.<\/p>\n

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Source: Bloomberg<\/p>\n

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Bonds rely on these simple things to generate returns:<\/p>\n

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  1. Yield \u2013 the interest a bond pays.<\/li>\n
  2. Interest rates falling \u2013 this lifts the market price of a bond<\/li>\n<\/ol>\n

    Yes, we\u2019re ignoring credit here, but want to make a point.\u00a0 Both #1 and #2 seemingly offer little to be excited about. Despite the recent rise in rates, we are still looking at historically low rates across the board.\u00a0 This translates to minimal yield on bonds. Given that, the potential positive contribution of rates dropping lower to bond prices is not all that great.<\/p>\n

    Anybody that knows us has heard us screaming about this environment.\u00a0 The drag of traditional bonds on investors\u2019 portfolios is real.\u00a0 We said it throughout 2020, we thought 2021 was shaping up to be negative return year for the AGG.<\/p>\n

    There is a chance that this rise in rates is just getting started.\u00a0 Knowing that, we are considering the current and potential impact on stocks.<\/p>\n

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    Growth vs Value Stocks<\/strong><\/h5>\n

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    We still see the path of least resistance being up for stocks, with two key drivers:<\/p>\n