US Treasury Bonds Poised for Longest Losing Streak in History

US Treasury bonds are on track to experience their longest stretch of losses ever, going all the way back to 1787, according to Bank of America. This would mark the third consecutive year of declines for the 10-year US Treasury bond, surpassing its worst performance in 1788. In 2021, the bond saw a 3.9% drop, followed by a staggering 17% tumble in 2022. This year, it has already declined by 0.3%.

The decline in Treasury bonds can be attributed to the Federal Reserve’s aggressive interest rate hikes. Since March 2022, interest rates have been raised 11 times, pushing the effective fed funds rate to over 5% from nearly 0%. As interest rates rise, bond prices fall, resulting in the poor performance of bonds.

Despite this ongoing trend of losses, investors have continued to pour money into bonds. In fact, $1.7 billion was invested into bonds this week alone, marking the 23rd consecutive week of inflows, as reported by Bank of America.

“The 10-year Treasury on course for a third consecutive loss…has never occurred in the 250-year history of the US republic,” highlighted BofA investment strategist Michael Hartnett. He explained that this reflects an astonishing 40% surge in the US nominal GDP, which combines growth and inflation, since the lows of the COVID-19 pandemic in 2020.

It is worth noting that this article provides a historical perspective on the current state of US Treasury bonds. These bonds have faced consistent downward pressure due to rising interest rates. However, despite the prolonged period of losses, investors have remained optimistic and continued to invest in bonds. The outcome of this trend remains to be seen, but it is clear that the performance of US Treasury bonds in recent years has been notable.