There has been speculation for some time that we are in a bond bubble, and that when rates rise bonds will be (decimated, pulverized, annihilated, whatever descriptive/destructive turn of phrase you care for).
The 10 yr treasury yield recently bottomed at 1.39 on July 25. It is now at 1.70, a notable increase of 22.3% in a relatively short time (5 months).
During this same time period, Google Finance shows that BND (Vanguard TBM ETF) has fallen by only 1.58%. I realize this does not include coupon payments and wonder if all following discussion should actually include those, but the data was not available to the precise date at Morningstar.
My questions are 1. Is this the proportional response that bond doomsayers have been afraid of (ie, a 20% increase in treasury yields will lead to a 1.5% decrease in the price of bonds) and 2. What are the explanations for the relationship between 10 yr treasury yield : TBM price being 20 : 1.5 as opposed to, say 20 : 3? With respect to the second question I suppose the answer includes comments such as "TBM includes not only treasuries but also ABS, corporate bonds, and not only 10 year maturities but both longer and shorter as well." But if you can add anything else as to why the numbers work out the way they do, I would appreciate it.
Finally, is the following statement correct? If not, is there any kind of 'blanket statement' that one could make with respect to the 10 yr treasury yield vs TBM pricing?:
"if the yield goes up 223% (10x its recent increase) then the decrease in BND pricing will be 15.8% (10x its recent decrease)."