“From the early 1980s to the early 2020s, falling interest rates were a tailwind for bond investors.” We have seen some version of this claim frequently, often from otherwise credible investment managers and market commentators. Yet this “tailwind” notion is easily shown to be nonsense.
More broadly, a blithely assumed “fact” is that rising rates are bad and falling rates are good for bond investors. This is understandable, since a jump in interest rates corresponds to an immediate drop in bond prices. But people forget this also means interest rates are now higher. For most bond investors, a jump in interest rates will add more value over time than what is lost immediately with lower prices.
We’ll get more specific about the meaning of “most bond investors” in Part 2 of a two-part series on Advisor Perspectives. In Part 1, we deconstruct the tailwind myth, showing that the 40-year bond “bull market” was due to very high interest rates at the beginning, and that falling rates detracted from long-run returns.
https://www.advisorperspectives.com/articles/2025/07/28/rising-rates-good-you-part-1
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