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Investment Performance During the 2015 Rate Hikes and Insights for the 2022 Rate Hikes

The Fed dropped the Fed funds rate to floor on 2008/12/8 for the 2008 housing bubble crisis and started to raise rates on 2015/12/14. On the 2019/7/30, the Fed started to lower rates. 

In this article, I want to explore performance of some investment vehicles during the following periods to see if there is anything interesting during the 2015 rate hikes:

  • 2008/12/8 to 2019/7/30
  • 2015/12/14 to 2019/7/30

2008/12/8 to 2019/7/30

  • Return of SPY : 312.514%.
  • Return of FKINX : 184.243%.
  • Return of HYG : 165.937%.
  • Return of LQD : 102.573%.
  • Return of GLD: 77.139%
  • Return of AGG: 51.946%.
  • Return of UUP: 3.385%

2015/12/14 to 2019/7/30

  • Return of SPY : 59.707%.
  • Return of FKINX :36.079%.
  • Return of HYG : 33.550%.
  • Return of GLD: 32.606%
  • Return of LQD: 22.624%
  • Return of AGG: 12.843%
  • Return of UUP: 5.836%

Worse Loss Analysis

I look for some of the worst loss during 2008/12/8 to 2018/7/29 to see if bonds are heavily affected by rate hikes.

Randomly investing for 1 year in AGG in this period, the worst loss is about -3.9%

Randomly investing for 1 year in LQD in this period, the worst loss is about -5.1% which happened between 2015-02-02 to 2016-02-01

Randomly investing for 1 year in HYG in this period, the worst loss is about -11.0% which happened between 2015-02-13 to 2016-02-12

Randomly investing for half of a  year in HYG in this period, the worst loss is about -9.9% which happened between 2015-04-07 to 2015-10-02



Insights for the 2022 Rate Hikes

Since January 4, 2022 when the S&P 500 index reached its high, HYG has dopped more -12.235% on July 8, 2022. This is a more than 10% loss in about half of an year, which is very bad comparing to its worst 1 year or half of a year loss during the 2015 rate hikes.
  • 1 year worst loss of HYG during the 2015 rate hike was -11%.
  • 0.5 years worst loss of HYG during the 2015 rate hike was -9.9%.
I argue it could be a good time to buy HYG unless today's economic conditions are worse than during the previous rate hikes. Otherwise, HYG is close to the bottom.

Other Thoughts

  • The investment span of 2008/12/8 to 2018/7/30 was the time span between when the Fed funds rate was near 0% to when the Fed finished rate hikes of 2015.
  • The investment span of 2015/12/14 to 2018/7/30 was the time span between when the Fed started raising rates to when the Fed finished rate hikes of 2015.
  • SPY had decent returns in both periods.
  • Bonds were affected with AGG more affected than LQD during the hikes.
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