Got Bonds?

Since 1981, long-term government bonds have gained an average of 11.5% per year, handily besting equities. The S&P 500 index gained the 10.8% per year over the same period, with much more risk and greater volatility (data from Jim Bianco, president of Bianco Research in Chicago).

Here’s Bloomberg:

“The biggest bond gains in almost a decade have pushed returns on Treasuries above stocks over the past 30 years, the first time that’s happened since before the Civil War . . . Stocks had risen more than bonds over every 30-year period from 1861 until now, according to Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School in Philadelphia.

U.S. government debt is up 7.23 percent this year, according to Bank of America Merrill Lynch’s U.S Master Treasury index. Municipal securities have returned 8.17 percent, corporate notes have gained 6.24 percent and mortgage bonds have risen 5.11 percent. The S&P GSCI index of 24 commodities has returned 0.25 percent.”

Overall, sentiment against bonds has been extremely negative, and remains a positive contrary indicator. Bloomberg notes that “Not only have bonds knocked stocks from their perch as the dominant long-term investment, their returns proved everyone from Bill Gross to Meredith Whitney and Nassim Nicholas Taleb to Leon Cooperman, wrong.”

So much for Stocks for the long run . . .
Say What? In 30-Year Race, Bonds Beat Stocks
Cordell Eddings
Bloomberg, Oct 31, 2011

Category: Fixed Income/Interest Rates, Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

26 Responses to “Bonds Beat Stocks: 1981-2011”

  1. Peter Boockvaar says:

    Amazing stats and a great example what 2 vicious bear markets will do within 10 yrs and the importance of protecting the downside

  2. b_thunder says:

    One more reason to be mortified by the Great Bond Bubble

  3. Lord says:

    Good luck repeating that.

  4. jasonch says:

    In 1981, US Govt yields were in the high teens. I wonder how this looks across other time periods.
    And how does it look in other countries?

  5. jimcos42 says:

    Perfect. Another piece of the puzzle that, when complete, will help define the ultimate bottom of this secular bear market.

  6. hieronymus says:

    2 Things: This is why people need to diversify and I wonder what the returns were for bonds and stocks in the subsequent 30 year period? Although the following isn’t a great match, see what bonds did after their post WW2 lows until the early 80′s. If memory serves me well, it was approaching zero when inflation adjusted.

  7. VennData says:

    So, in 2041 will the US the 30 year T-bond will yield 0.0001%?

    I say, no.

  8. Ramstone says:

    “…it’s absolutely mathematically impossible for bonds to get any kind of returns like this going forward whereas stock returns can repeat themselves, and are likely to outperform,” he said. “If you missed the rally in bonds, well, then that’s it.”

  9. Futuredome says:

    Bonds signify the great deflation since 1980. While credit sprang wildly, the real US economy collapsed.

    The inability for people to understand this is amazing. There is no “bubble”. It is what it is.

  10. dead hobo says:


    You nailed it. Now it’s just a trade for when money is flowing out of stocks and needs a place to go. I found a good bond fund that seems reactive enough for this purpose. Also, in a few years when/ if the financial world settles down so long term rates remain reasonably stable and capital gains and losses are not a factor, I plan to put a pile of cash in that fund and get 4%+ and live off the interest while drawing down the principal a little every once in a while for fun.

  11. Non Sequor says:

    If treasury interest rates ever go to double digits again I’m dumping all of my equities and buying all the long term bonds I can.

    Right now though, the bond market is sick. Buying a 30 year treasury right now is guaranteed to have a negative real return. Scared money has destroyed the bond market.

    Eventually all of the bond holders are going to get burned bad, but I think that’s going to be part of the economy turning around. We’re stuck on this economic trap right now because of the climate of intense risk aversion. Companies and people are afraid of the restructuring and pursuit of new opportunities that are needed to move forward. Everyone’s desperately trying to cling on to what they already have.

    Personally, I think we need double digit inflation to remind everyone that there are still risks if you try to sit on your hands and wait for other people to turn the economy around.

  12. Finster says:

    US treasury bonds are the vehicle for recapitalizing the banking system. Through bonds flows the fresh currency created by the FED into the balance sheets. US treasury bonds are the nexus of monetizing bank credit into currency units. They have “veblen good” like qualities. If you cannot understand the debt deflation induced rush into government paper to swap for currency specie, then you have no hope of understanding supply and demand dynamics in the current bond markets.

    My logic tells me: No one buys these things currently to get a return on investment. There is no market interest rate. There is only the FED.

  13. bmoseley says:

    true but a illogical time period. it logical to prove a point, but not an unbiased time frame. in my opinion you shouldn’t have even posted this article. picking the bottom as a starting point is silly. How about an analysis over 50 or 60 years. or maybe back to the 30s when interest rates were really low.


    BR: Why is that period logical?

    My best number is a 10 year rolling return

  14. dougc says:

    If you like bonds, there is going to be 1 trillion Euro of EFSF issued shortly. They tried to sell 5 billion of 15 year and due to lack of demand they lowered it to 3 billion of 10 year. Now you know the reason the Europeans are glenflecting today in Bejing.

  15. Clem Stone says:

    When looking at a 100 year chart, interest rates were clearly in bubble territory in 1981. That’s the main reason bonds have outperformed since then.

    But anyone expecting that the opposite is now true should be aware that long term govt bonds yielded less than 3% for about 20 years during 1935-1955. Current levels are not as historically nutty as many people believe. The nuttiness occurred 30 years ago and we’ve been reverting to the mean ever since.

  16. Finster says:

    1935-1955 was a period of fiscal repression, read negative real interest rates enforced by the central banks. The same phenomenon is currently in place in China, the UK, in the US and most of Europe. Soft default through negative real interest rates over a long term. The purchasing power of your money wanes nevertheless.

    My investment case rests on the question: Who will be able to provide me with undiluted purchasing power in the future? A government with a hard currency and power to tax or a corporation with a scarce good facing inelastic demand?

  17. rd says:


    Actually 30 years is a pretty significant period for a person. 30 years would be your major earning years from 30 yrs old to 60. It would also be a long-lived person’s retirement from 60 to 90. Most mutual funds are less than 30 years old.

    Bengen based his 4% safe withdrawal rule on looking at 30-yr rolling returns of various asset mixes.

    View it as further support of Bogle’s simple formula for sleeping well is to have 50% bonds and 50% stocks.

  18. csainvestor says:

    Here is a sobering thought.
    A simple passbook savings account yielding higher interest rates would give stocks a run for their money.
    In Australia today- you can get a CD for 6.5% it was 7% a few months back.

    From the 60′s to the 80′s you could get CD’s or passbook rates over 5% as well.

    A simple passbook savings account, thanks to compound interest, over a 50 year time span, would i suspect, be competitive with stock market returns- minus the volatility.

    Of course, at today’s savings rates- you will get nada.

    *remember the E-banks, internet banks ING, Netbank early 00′s and late 90′s- they had 5% interest rates.

    *It’s very hard to find old passbook interest rates- i wonder if they scrub them on purpose.

  19. cognos says:


    You shouldn’t have posted this. The headline is between misleading and lying.

    “bonds did NOT beat stocks”

    The 30 yr bond did, bought on the low tick, to this exact point. In a few months, the point goes away.

    Prior to that day (30 yrs ago)… 30 yr bonds had likely lost over half their value. It’s very risky, like stocks.

    Anyway, rally continues. Enjoy the bull market… That most of you won’t see until its 80% over.

  20. csainvestor says:

    staying on the passbook example.

    Up until 2008 you could still get a CD over 4%.
    It goes without saying, but, Savings accounts have massively outperformed the markets since 2000.

    As an aside.
    A family i used to know, very conservative investors, upper middle class- they went to an investment advisor around 2000.

    The advisor put them into GE, C, HD, Intel, a few other big names.
    They thought they were buying these stocks for life, so they never looked back, they hold that same portfolio till this day, and they are still down a huge amount.

    I wonder how many long-term buy and hold investors purchase individual stocks instead of mutual funds or index ETF’s ?

    looking back over the past 12 years or so- you have to wonder how many people wished they had their money in CD’s instead of the markets.

  21. Joe Friday says:

    Robert Kessler has been makin’ this point for years:

    “Over the past 25, ten and five year periods, U.S. Treasuries have outperformed stocks. That is pretty long term in most people’s lives. Let’s go even further back than that. Historically 40% of stock returns have come from reinvesting dividends. The power of reinvesting cash is a mighty one. But the yield on the S&P 500 hovered around 3% during the ’60s, rose to over 6% in the early ’80s, before starting a steady decline to under 2% in the ’90s, rising recently as stock prices dropped and payouts picked up. Dividend payouts this year should fall at least 22.6%, the worst year since 1938 when dividends declined 36.3%.”

    25 YEARS BACK: TREASURIES 10.9% & STOCKS 09.8%
    10 YEARS BACK: TREASURIES 08.7% & STOCKS -1.4%
    05 YEARS BACK: TREASURIES 13.1% & STOCKS -2.2%

    [AS OF 12/31/08]


  22. Michael Olenick says:

    Take away the power to tax — to create “customers” by force — and these figures would look very different.

    They will look very different as municipalities and states default under the weight of crushing and impossible irresponsible debt burdens crooked politicians inflicted on their constituents. It isn’t a question of if, but only when, people tell entitled government employees drawing pensions far above anything anybody who didn’t work for government could have earned, to jump in a lake.

    Let the judges try to force tax increases elected officials refuse, to pay bloated government worker pensions, and OWS will look like a preschool soccer game contrasted to Arsenal.

  23. the pearl says:

    This is interesting but worthless information. You can be assured that the overwhelming majority of investors over the last 30 years jumped in and out of the bond markets just like they do the stock markets and achieved substandard returns. How many individual or institutional investors bought long bonds 20+ years ago and are still holding them? I suspect that number is close to zero. Any asset class looks good when data gathers select the exact bottom as your starting point and the possible top as your ending point. What do you think the opinion of bonds was in 1980-1981? You couldn’t give one away. What now? The public is knee deep into bonds. The greatest bond trade in history is going to be followed the greatest example of return chasing in history.

  24. victor says:

    As we all recall, real returns on treasuries, across the entire yield curve were negative in 1980-1981. Then came the Volker years. Benjamin Graham said it all when he cautioned that there was no guarantee that stocks would outperform bonds going forward hence his advise to always allocate a portion of our portfolio to bonds. The big money in bonds was made, of course, by the big banks’ via their bond trading divisions. Didn’t Jon Corzine rise to the helm of GS on that wave? Didnt he (just) fall on his own sword? When I write “big money” I mean money captured from the economy via the big banks’ sophisticated compensation schemes. Nassim N. Taleb has an op-ed piece:

    It is titled “The great bank robbery”. Here’s an excerpt:

    “For the American economy – and for many other developed economies – the elephant in the room is the amount of money paid to bankers over the last five years. For banks that have filings with the US Securities and Exchange Commission, the sum stands at an astounding $2.2 trillion. Extrapolating over the coming decade, the numbers would approach $5 trillion, an amount vastly larger than what both President Barack Obama’s administration and his Republican opponents seem willing to cut from further government deficits”

    and “Perhaps the greatest insult to taxpayers, then, is that bankers’ compensation last year was back at its pre-crisis level.”

    I wonder how much of these trillions in compensation come from bonds trading?

  25. Joe Friday says:

    the pearl,

    How many individual or institutional investors bought long bonds 20+ years ago and are still holding them? I suspect that number is close to zero. Any asset class looks good when data gathers select the exact bottom as your starting point and the possible top as your ending point.

    The results are even more dramatic in the 5-year and 10-year contrasts.

  26. Berkeley Maven says:

    My main beef with this Bloomberg article is not just the selective choice of thirty year time period. It’s the use of the S&P 500 to represent “stocks”, and 30-year Treasuries to represent “bonds”. I’d love to see how the numbers work out when using all US stocks and all US bonds, or even all global stocks and all global bonds.

    I don’t know any advisers or independent investors that form portfolios using only the S&P 500 and long Treasuries. Actually, Vanguard just announced plans to deep-six its Asset Allocation fund (VAAPX) that did TAA only between the S&P 500, long Treasuries, and T-bills; this was the only fund of its kind, to my knowledge.