(This guest post was submitted by the author, and originally appeared at ZeroHedge)
A unique look at bond behaviour will serve to illustrate how risk is lowered in holding long Treasuries for the coming year.
The graph that we produce today is based on data from the St.Louis Fed.
The Treasury bond data reflects the constant maturity 10 year bond and includes the coupon plus price appreciation.
You are looking at the annual return of the 10 year bonds since 1928.
A startling observation is the large upswing following a negative year.The year 2009 closed with a negative return of -11%.
The readers will notice that over the last 80 years plus rarely has this phenomenon been proven incorrect.The only exception is the period at the chart point 28 and 31 which represents the time frame of 1955 to 1956 and 1958 to 1959 where one negative year was followed by a second negative year.
In both instances the following negative year amounts to either -2.26% or -2.65%. These two events are the exception to an 80 year period. This simple correlation for bonds to turn positive following a negative year is compelling
On a positive note, negative years are often followed by a string of positive years.
To be clear, the consensus is for bonds to drop “again” this year. This market observer will hedge his bets on the simple fact that 80 years of history has demonstrated.
The opinions contained in this report are those of the author and are not necessarily those of Macquarie Private Wealth Inc (MPW). Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor MPW makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. No entity within the Macquarie Group of companies is registered as a bank or an authorised foreign bank in Canada under the Bank Act, S.C. 1991, c. 46 and no entity within the Macquarie Group of companies is regulated in Canada as a financial institution, bank holding company or an insurance holding company. Macquarie Bank Limited ABN 46 008 583 542 (MBL) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. MBL is not authorised to conduct business in Canada. No entity within the Macquarie Group of companies other than MBL is an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia), and their obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of any other Macquarie Group company. Macquarie Private Wealth Inc is a member of CIPF and IIROC.
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