We've been seeing analysts increasingly talk about a "1994"-style situation playing out in the market.
What does that mean?
Basically, the market was caught off guard that year by a surprise Fed tightening, and
Nobody expects a real "tightening" soon, but there is more talk about it, and there's a lot of talk about a "Great Rotation" from fixed income back to equity (though that might also be wishful thinking, as opposed to actual prognostication).
Anyway, M&G Investments on Twitter has a great few tweets about what happened to other markets in 1994. It's all well and good to talk about a jump in rates and carnage in fixed income, but if your neck of the woods is no better, then it doesn't matter.
They observe.
Various market commentators: "US treasury bond yields to explode higher. But don't worry, MY asset class will remain immune from this"
— Bond Vigilantes (@bondvigilantes) January 21, 2013
The lesson of the 1994 bond bear market was that whilst USTs sold off, in many cases (eg Emerging Markets) risk assets sold off more...
— Bond Vigilantes (@bondvigilantes) January 21, 2013
1994 returns were: BAML US Treasury index -3.45%, MSCI EM equity index -8.67%, BAML EM Debt index -15.33%
— Bond Vigilantes (@bondvigilantes) January 21, 2013
UST returns won't be so flattered in sell off this time as yields/income much lower. In 94 capital loss of over 10%, but total return -3.45%
— Bond Vigilantes (@bondvigilantes) January 21, 2013
As for the S&P 500, it gained 1.3% that year.