4 February 1994: The Fed starts the great bond massacre
The Federal Reserve raised its key rate by a quarter point, the first hike in five years. It sounded modest, but a series of further increases followed and bond prices tumbled throughout the year, inflicting heavy losses on leveraged investors. Orange County, California, went bankrupt in December after betting heavily on low rates. Safe assets can be painful when you buy them with borrowed money.
The lesson: Bonds are only safe if you can hold them; leverage turns a dull asset into a dangerous one.
What it meant for investors
$1,000 in US Treasury bonds at the start of 1995 → $3,467 today, vs $14,783 in the S&P 500.
We start the clock at the start of 1995, the first year in our price data after the event. That is 3.5 times the money, but $11,316 less than a plain index fund made over the same years.
What US Treasury bonds teaches: Bonds bought at very low yields carry real price risk, because the starting yield is the best guide to future bond returns.
| Bought in | Price then | Worth today | S&P 500 would be |
|---|---|---|---|
| 1995 | $150 | $3,467 | $14,783 |
| 2000 | $215 | $2,419 | $4,626 |
| 2003 | $280 | $1,857 | $7,727 |
green = beat the S&P 500 · red = lost money
What if you bought US Treasury bonds? Every starting year and the full story →
More US Treasury bonds history
- 18 March 2009: The Fed fires its bazooka
- 15 June 2022: The Fed hikes 75 basis points
- 5 August 2011: S&P strips the US of its AAA rating
- 27 August 2020: The Fed changes how it targets inflation
- 6 October 1979: Volcker's Saturday Night Special
- 3 November 2010: The Fed launches QE2
Could you have called it at the time? The wheel picks the year, you pick the position, ten seconds a pick.
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