CHART OF THE DAY: Government Bonds Were The Dumbest Bet Of The Year

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If you bought a 10-year U.S. bond at the beginning of the year, it was a horrible bet. At the time, long-term interest rates had collapsed as much of the world looked for a ‘safe haven’ in U.S. government debt.


Yet 10-year bond buyers forgot that bonds do well in a crisis only if you own them before everyone has panicked, not after.

As shown below, the 10-year bond yield has increased substantially year to date, rising to about 3.8% from 2.5% in early January. That’s a huge move in 10-year bond terms.

Bond prices move in the opposite direction of market yields, thus the old 10-year bond that went for $100 in January would now go for about $90 (Using a simple bond calculator) given that it has to pay 3.8% yield with its old low coupon. Look at any U.S. long-term bond ETF, it’ll be down for the year. Meanwhile, stocks and even junk bonds have rallied.

Worse yet, if U.S. interest rates are hiked, or U.S. inflation picks up, the 10 year bond in our example will likely fall even further in value. Simply put, it’s not a ‘safe haven’ investment when everyone is herding into it.
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