Submitted by Yves Lamoureux, from Macquarie Private Wealth
A unique look at bond behavior 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.
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