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Whitepaper: Bond Rates


Whitepaper: Bond Rates

Arguably the greatest risk to investors today is an underappreciation of how significant a change in bond interest rates will be on the market prices of every asset from shares, to property to collectible licence plates.


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Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.


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This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564) and may contain general financial advice that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking advice from a financial advisor if necessary.


  1. Hi Roger, many illustrious market commentators have rightly suggested that the US equity market is expensive given its PE, and in particular that the current elevated level of US market PE is due to low bond rates and that when bond rates go up the US equity market will fall.
    But we need to put actual numbers on this – i.e. what one thinks the 10 year bond rate will go up to in the next few years, and at that higher yield what will the market PE be?
    Prof Aswath Damodaran has done a regression analysis of market PE and bond yields from 1960 to 2014 and suggests that as of today with the 10 year at 2.25% the equity market is fairly priced and his regression formula lets you work out what the market PE should be depending on the T bond rate you assume in the future. See 17:40 to 22:48 in his video today:

  2. Residential Property has a tax subsidy called negative gearing that will soften the effect of any interest rate increase. Government subsidised hedge against interest rate increases so not all asset classes will react the same.

  3. “Long bond interest rates are a key variable in a borrower’s decision to commence a business or acquire a property. ”
    I would be very surprised if more than 20% of property investors give any thought to long bond interest rates. I believe more thought at present is given to the fear of missing out and more about what I can afford to borrow due to cheap money, than valuations or longer term interest rates.
    Time will tell, but the confidence and jubilance surrounding property at present, is what I assume Warren Buffet is talking about when being fearful when others are greedy.

  4. Thanks Roger,

    Always very refreshing reading your articles, and sobering at the same time. Thanks for keeping my feet planted firmly on the ground and not getting caught up in the hot air.

    As an addition to this piece, is there any areas that investors should keep in the front of their mind when asset prices do correct. That is, if and when asset prices react negatively to increasing interest rates, what sectors will typically stand out in your experience.



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