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The move higher in Treasury yields over the past month has been another blow to bond investors, who are now sitting on long-term returns that are worse than cash. Bank of America investment strategist Michael Hartnett said in a note to clients that the rolling 10-year return on U.S. Treasurys is now in the red at -0.5%. “At no time in the past 90 years has [the] 10-year rolling return from U.S. Treasuries been negative. It is now,” Hartnett said. “This is peak in ‘anything but bonds’ trade of 2020s; by comparison, long-run returns for U.S. stocks [is] 13.1%, commodities 4.5%, IG bonds 2.4%, T-bills 1.8%,” he continued. TLT ALL mountain Treasury bonds have struggled over the past decade, especially long-dated bonds like the ones held in the TLT ETF. The price of bonds moves opposite to yields, so the fact that bonds have performed poorly over a period that included rapid interest rate hikes from the Federal Reserve is perhaps not too much of a surprise. However, Hartnett pointed out that bonds have also been among the worst performing assets even since the Fed began cutting rates in September. Investors seem to be preparing for a higher for longer rate environment, regardless of how many times the Fed cuts rates in 2025. Worries about the path of U.S. government spending could also be a factor pushing up long-term interest rates. Of course, those high yields may be what brings in new buyers and sparks a rally. Damian Kestel of CLSA pointed out in a note to clients that only 5% of the 500 largest U.S. stocks have a dividend yield that is even half of the 4.7% level the benchmark 10-year Treasury was trading at on Thursday. And with long-term returns, the starting point matters quite a bit. A decade ago, the Fed funds rate was near zero. Now, there’s more potential capital returns, not just income, for bond investors if rates come down over time. Hartnett said that a “low risk” portfolio of mostly U.S. government debt and investment grade bonds has potential return of 11% to 12% if yields fall back just toward the 4% mark. The 10-year U.S. Treasury was trading just above 4.6% on Friday afternoon.
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