Let's say "Tom" allocated a large amount of capital in some fund's (it's TIAA-CREF, actually) bond assets.
In our fictional scenario 2 things are going to happen in the next year:
The equity markets will crash due to a Black Swan event.
Interest rates will keep rising.
The question is: what will happen to the valuation of Tom's bond holdings after the equity crash?
Here's what Tom thinks is the most likely scenario:
a) Bond Price Bump due to Demand: Initially, as market money moves out of equities into bonds, the bond prices will rise (for a short while). So Tom will see a short-term gain.
b) Bond Price Decline due to Rising Interest Rates: Eventually, the bond prices will start falling again (due to rising interest rates) and cause a serious decline in Tom's holdings.
What do you think? Is Tom in the correct ballpark?