Among those investors who had been surprised were those who have seen domestic and global shares deliver positive returns as the talk of economic recovery spread.
The culprit this time was not bond defaults, but a sharp rise in long-term interest rates, he said.
Ten-year interest rates had risen 1.56% in the past six months. When interest rates increased, corporate bonds - which offered a fixed return to maturity - tended to drop in value to a level that ensured the purchaser of the bond would get the new, higher rate of interest.
The daily pricing of some corporate bond funds had led to negative returns over the past six months as interest rates had been rising in the same period, he said.
Asked if New Zealand investors had flocked into bonds looking for income, Mr Myles said that following the difficulties associated with finance companies and mortgage funds last year, investors had focused on investing in corporate bonds issued by high-quality "household names".
Investors were worried about the possibility of default and were focused on the quality of the issuer.
"Although this is logical, what many fail to appreciate is that when interest rates go up, the resale value of corporate bonds tends to go down - even if they have not defaulted."
Investors who held corporate bonds to maturity could still expect to receive their investment back, assuming the issue did not default, he said. However, investors who sold before maturity might not be so lucky.
Adopting a "buy and hold strategy", which many were employing was likely to see their situation exacerbated.
A recent example of the impact interest changes could have on corporate bond values was the $900 million Rabobank Capital Securities bond that was issued in October 2007 and which was trading at only 74.5c in the dollar as at July 30, despite no change in the credit quality of the underlying issuer, Mr Myles said.
However, ABN Amro Craigs broker Chris Timms, while agreeing with Mr Myles that a rise in interest rates could change the value of bonds, said that would only happen if people wanted to sell them.
"If you hold them to maturity you are always going to get your money back, plus interest. Bond values change every minute of the day. They move and trade like shares."
Generally, investors bought bonds to receive income on a regular basis.
They were not so concerned with what they were trading at on a daily basis, just whether they would get their money back at the end.
