Source: Factset, 10/31/13. Note: “Taper Tantrum” time period is defined as 5/2/13 through 9/5/13 and is marked by a 137 basis point increase in the U.S. 10-Year treasury (a basis point is 1/100 of a percentage point). Index definitions can be found at the bottom of this post. Past performance does not guarantee future results.
Since the financial crisis, investors have generally preferred income-generating assets, favoring the perceived safety of government bonds and higher yielding equity sectors like utilities, telecom and staples. A portfolio comprised of government bonds and defensive, higher yielding equities performed well until the summer of 2013. Then, at the mere mention by Federal Reserve officials of a future tapering of asset purchases, those assets, which are particularly interest rate sensitive, were sent tumbling, creating losses for investors in assets that they had viewed to be less risky. The so-called “taper tantrum” proved to be for naught as the Fed maintained its level of asset purchases and the higher interest rate sensitive assets recovered some of their losses.
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