Is there a bubble or just plain, old fashioned trouble brewing in the bond market? As you can see from this chart, interest rates moved up steadily from the mid-1970s until 1981. The big spike began in 1979 when Paul Volcker became head of the Federal Reserve. He was tasked with the mandate of defeating inflation, and aggressively moved to raise interest rates and slow down the economy. As a result, investors in long-term bonds got crushed as bond prices fell precipitously.
That was not viewed back then as a bubble, but rather as a bear market for bonds. After rates peaked in late 1981, we began a 30-year decline in rates.
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Source: Investech Research
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