Robert Shiller, the Nobel Laureate, doesn’t think so. Shiller recently went back to review a bond market analysis he did in his doctoral dissertation and first published professional paper. He updated the research and bond market forecasting formula used in the paper. His conclusion is that investors don’t have much reason to fear a bond market crash despite our very low interest rates and the Federal Reserve’s stated intention to raise interest rates.
But the explanation that we developed so long ago still fits well enough to encourage the belief that we will not see a crash in the bond market unless central banks tighten monetary policy very sharply (by hiking short-term interest rates) or there is a major spike in inflation.
Bond-market crashes have actually been relatively rare and mild. In the US, the biggest one-year drop in the Global Financial Data extension of Moody’s monthly total return index for 30-year corporate bonds (going back to 1857) was 12.5% in the 12 months ending in February 1980. Compare that to the stock market: According to the GFD monthly S&P 500 total return index, an annual loss of 67.8% occurred in the year ending in May 1932, during the Great Depression, and one-year losses have exceeded 12.5% in 23 separate episodes since 1900.