By: Russ Kamp, CEO, Ryan ALM, Inc.
As you’ve heard us say and write many times, U.S. investment-grade bonds are not performance drivers. Bond should be used for their cash flows, as they are the only asset class with a known terminal value and contractual interest payments. Those attributes should be used to SECURE the promised benefits (and expenses) each month chronologically, as far into the future as an allocation to cash flow matching can go.
In case you missed some of the previous posts that highlighted our concerns about bonds as a return generator, here are three posts among many:
Then there is today’s comment from a Glen Eagle Trading email:
The 2020s are experiencing the worst real (inflation-adjusted) returns for U.S. government bonds across all maturities on record, with 5-year, 10-year, and 20-year treasuries showing real returns of -3.5%, -5.1%, and -8.3% respectively. OUCH!
Those types of returns were not seen during the nearly four decades decline in U.S. interest rates, but the rising rate environment that we are currently experiencing is certainly playing havoc with total returns for bonds. As we’ve mentioned in the post titled, “Really Only One Significant Influence”, interest rate regimes tend to be long secular trends. Will that pattern persist? Your guess is as good as mine. Given the uncertainty, please use the higher yields present today to secure your promised benefits and bring an element of certainty to the management of your fund.
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