US Treasury Bonds Suffer Worst Performance in Nearly a Century, Future May Bring Investment Opportunities

US Treasury bonds are experiencing their worst performance in nearly a century. For investors willing to bet on falling interest rates, this may be a major buying opportunity, but for investors seeking only safe, stable diversification, this is undoubtedly bad news. For a long time, investors have relied on Treasury bonds to provide stable returns to hedge against the high volatility of stocks. However, over the past decade, long-term Treasury bonds have shown negative returns for the first time. According to recent research data from Bank of America Securities, this situation is the first since the 1930s. A team led by Bank of America analyst Michael Hartnett stated, "We are now at the peak of 'anything is better than Treasury bonds'." The research shows that over the past decade, the return on long-term bonds with a maturity of 15 years or more has been -0.5%, the worst performance since the mid-1930s. In comparison, US stocks have averaged a yearly return of 13% over the past decade, while short-term bond returns have been 1.8% annually. The slow economic recovery following the 2008-2009 financial crisis is to blame. At that time, the Federal Reserve kept interest rates low by purchasing long-term Treasury bonds, a policy that continued into the 2010s. While this measure helped the US economy return to growth, investors suffered significant losses when the Fed raised rates post-pandemic to curb inflation. It is important to note that bond prices move in the opposite direction to interest rates. Despite poor performance over the past decade, the potential of Treasury bonds in the future should not be ignored. Currently, the yield on 10-year Treasury bonds has risen to 4.57%, more than double what it was a decade ago. This means that if rates continue to rise, bond investors still have a higher buffer for total returns. Additionally, if rates fall, bond investors could see a significant rebound. Given high stock market valuations, investment institutions like Vanguard and Goldman Sachs have recently predicted that bonds may outperform stocks over the next decade. Bank of America is also optimistic about investment opportunities in the bond market. Bank of America recommends constructing a "low-risk" bond portfolio with a balanced allocation to three-month Treasury bonds, 30-year Treasury bonds, investment-grade corporate bonds, high-yield bonds, and emerging market bonds. Currently, the portfolio yields approximately 5.7%. If bond yields drop by one percentage point, the total return on the portfolio within a year could reach 12%. However, for investors unwilling to bet on interest rate movements, they hope that bonds can act as a stabilizer against stock volatility. Faced with continued rising long-term rates and some decline in short-term rates, the predictions of a bond rebound may not be comforting to these investors. An alternative strategy is to reduce bond allocations and shift towards stocks and cash instruments, as their yields are currently comparable to long-term bonds. However, investors need to ensure they hold enough short-term assets to cope with potential market downturns or unemployment crises. Morgan Stanley Wealth Management suggests further diversifying investment risks through globalization and alternative investments. Chief Investment Officer Lisa Shalett pointed out in a report on Monday that the US stock market is currently overvalued, and the sensitivity of bond yields has weakened the hedging effect of Treasury bonds. She recommends that investors look into undervalued foreign stocks, as well as alternative assets such as master limited partnerships (MLPs), real estate investment trusts (REITs), and preferred stocks.