Part 4/15:
Greg emphasized that these fluctuations highlight the inherent risk in bonds, especially long-term ones. For instance, the 30-year Treasury, currently yielding about 2%, can lose over 10% of its value in a week if yields spike even modestly—a clear indication of how volatile fixed income assets have become.
The Impact of Inflation and the Illusion of Safety
Larry expanded on this, stressing the peril of holding bonds with yields that are dwarfed by current inflation rates, which hover around 7%. With a 1.75% yield and 7% inflation, investors suffer a negative real return of roughly 5.3%, effectively eroding their purchasing power over time.