"Bonds are safe!"Many believed that stuffing their portfolios with government bonds was the route to safety. The common wisdom was that even if the stock market took a nosedive, bonds would come to the rescue and stabilize the portfolio.
What makes this bear market particularly intriguing is that the price plummet, unlike the subprime crisis, was not triggered by risk spread, but by duration risk, as illustrated in the image below:Let's simplify this for those not well-versed in financial jargon: The recent crash in bond prices is entirely due to the extended duration of the bonds one selected.Some might argue:
Some may hold these bonds until maturity to recoup their initial investment, while others may be forced to sell at a loss in desperation.One could have diversified portfolios by issuer type, varied the durations , maintained a good stock of specific liquidity to buy in during market crashes , and adopted common-sense strategies.