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Cohen lays out a grim scenario in “Surviving the Bond Bear Market” (John Wiley & Sons Inc.), co-written with husband Chris Malburg. Rates will surge if the global economy strengthens or because investors lose faith in governments with growing deficits, said Cohen, whose book came out this month. Standard & Poor’s this week put a “negative” outlook on U.S. credit, citing the risk that leaders will fail to curb debt.
“The baby boomers, who really have been all-in to all kinds of bonds and bond funds since the end of the credit crisis, they’ve never lived through a bear market with skin in the game,” Cohen said in a telephone interview. “It’ll freak people out.”
Cohen warned in November against California’s general obligation bonds because of the state’s deficits, saying, “The news headlines are going to continue to go from bad to terminal.” Since then, yields have risen to 4.44 percent from 4.09 percent.
Investors can guard against the steepest losses by switching to shorter-term funds, or profit through bearish Treasury bets, Cohen said. A 2 percentage point climb in interest rates over the next 12 months, which she said is possible, could spur price declines of 14 percent in 10-year U.S. Treasuries, according to data compiled by Bloomberg.
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