Bonds might be losing their safety…

“When I have to depend upon hope in my investments, I get out of it.”

Jesse Livermore (Trader)

Stupid is on sale at Forbes…

People have been taught bonds are their savior… regardless. Full. Stop. And they have been right since 1981. In fact zero coupon bonds have actually outperformed the S&P 500 since 1981. 

But the past is not the future. And 2008 changed everything. 

We are not going to see the yield on the US 10-year treasury go from 15.5% (1981) to 1.5% (today) again… at least not for a very long time.

And we are most likely not going to see the current US 10-year yield go from 1.5% to -12.5%… that’s not a fall of -12.5% but a yield of negative twelve point five percent. 

But what we can commit to is that when the stock market starts to crumble (read: more than a 20% drop) people are still going to flea into non-stock assets. But these non-stock assets do not have to be bonds. And even if they are bonds, they might not act bond-like. 

And with bonds likely to provide a return below inflation, not the government CPI-inflation number, but real-life inflation… bond holders are going to feel like they won’t have enough and that they have lost control over their future. 

But it doesn’t have to be that way. 

See the image below from Ben Carlson that shows how the annual yield of a US 5-Year bond has changed per decade since the 1970s.

5-Year US bonds aren’t known for killing it in the yield department, so it’s not the actual yield that caught my eye but how much lower they are moving decade by decade. 


A 5-Year US bond = 1.4%. 

A 10-Year US bond = 1.55%. 

A 20-Year US bond = 1.88%. 

A 30-Year US bond = 2.05%. US ‘official’ inflation rate = 1.5%
S&P500 Yield for 2019 = 1.85%

Not only would I like to show you specifically how “stupid” is on sale at Forbes but I’d also like to show you a magical number that once it “breaks” could signal some really weird bond volatility.

In Your Corner,

RCPeck-Dig Signature.JPG

RC Peck, CFP