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Treasuries 27-Year Rally Likely Over

By    |   Thursday, 09 Jul 2009 11:11 AM

Treasurys have provided investors a juicy return over the past 27 years. But with the budget deficit and debt burden exploding, that golden era may be over.

Conventional wisdom says stocks outperform bonds over the long term.

But in the 40 years through June, long-term Treasurys gave investors annual returns of 8.5 percent, almost equaling the 9.2 percent return on large-cap stocks, according to Ibbotson Associates data cited by The Wall Street Journal.

Treasurys performed particularly well late last year, when investors around the world sought a safe haven from the global financial crisis. The 10-year Treasury yield fell to a record low of 2.08 percent in December.

But concern that inflation will jump as a result of the growing budget deficit and debt obligation has taken a toll.

The 10-year Treasury yield stood at 3.3 percent late Wednesday.

The Barclays Capital index measuring total return for seven-to-10-year Treasurys has dropped 6.3 percent so far this year, compared with an 18 percent gain in 2008.

And many experts say the trend will continue.

“Avoid Treasurys, that’s my advice,” Donald Quigley, co-manager of Artio Total Return Bond fund, told The Journal. He has shrunk the fund’s Treasury exposure to 4.7 percent of assets from 17 percent two years ago.

Others are bearish, too.

“I used to be a believer” in the summer rally for Treasurys, Gary Pollack of Deutsche Bank told Bloomberg. But now, “The amount of Treasury debt that needs to be financed is a game-changer.”

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Treasurys have provided investors a juicy return over the past 27 years. But with the budget deficit and debt burden exploding, that golden era may be over.Conventional wisdom says stocks outperform bonds over the long term.But in the 40 years through June, long-term...
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2009-11-09
Thursday, 09 Jul 2009 11:11 AM
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