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A year to forget for government debt
What does the chart show?
The chart shows the calendar year performance of an index that tracks US dollar-denominated sovereign debt for every year since 1978, as well as the year-to-date (YTD) performance for this year. Historically the performance of US debt has fluctuated significantly around an average return of 7% per annum but has the potential to produce excellent returns. In 1982, the index returned 27.97% throughout the year. In 2009 the index had its worst full calendar year performance, falling 3.72%. These statistics help put into context the astonishing performance of US Sovereign debt this year. US treasuries have fallen 11.9% so far this year which, if they end the year unchanged, would be the worst year for bonds for almost a century when bonds fell by 15% in 1931.
Why is this important?
This year has been a difficult one in markets with seemingly no hiding place for investors. Equities have fallen with bonds as the typically negative correlation between the two asset classes has deteriorated in the high inflationary environment. Real assets have declined in value on rising interest rates despite the higher inflation helping them at the margins. Even commodities, which started the year with record levels of performance, have fallen back to just above-average levels. However extraordinarily difficult this year has felt for investors, it is important that it be remembered as just that, extraordinary. Price fluctuations are driven by short-term shocks that produce an emotional response in markets. Although this year has been difficult, as shown by the above chart, we can also see that a more measured, long-term approach has historically proved to be beneficial to investors. If we look to the future, the sharp downturns in certain markets have also provided opportunities to invest in high-quality securities at below-average prices as some investors overreact to negative sentiment. These kinds of value opportunities have been less prevalent in recent years as asset prices have become inflated above their fair values but now provide a good reason to be optimistic about the future.
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By Mondial DubaiWhat does the chart show?
The chart shows the calendar year performance of an index that tracks US dollar-denominated sovereign debt for every year since 1978, as well as the year-to-date (YTD) performance for this year. Historically the performance of US debt has fluctuated significantly around an average return of 7% per annum but has the potential to produce excellent returns. In 1982, the index returned 27.97% throughout the year. In 2009 the index had its worst full calendar year performance, falling 3.72%. These statistics help put into context the astonishing performance of US Sovereign debt this year. US treasuries have fallen 11.9% so far this year which, if they end the year unchanged, would be the worst year for bonds for almost a century when bonds fell by 15% in 1931.
Why is this important?
This year has been a difficult one in markets with seemingly no hiding place for investors. Equities have fallen with bonds as the typically negative correlation between the two asset classes has deteriorated in the high inflationary environment. Real assets have declined in value on rising interest rates despite the higher inflation helping them at the margins. Even commodities, which started the year with record levels of performance, have fallen back to just above-average levels. However extraordinarily difficult this year has felt for investors, it is important that it be remembered as just that, extraordinary. Price fluctuations are driven by short-term shocks that produce an emotional response in markets. Although this year has been difficult, as shown by the above chart, we can also see that a more measured, long-term approach has historically proved to be beneficial to investors. If we look to the future, the sharp downturns in certain markets have also provided opportunities to invest in high-quality securities at below-average prices as some investors overreact to negative sentiment. These kinds of value opportunities have been less prevalent in recent years as asset prices have become inflated above their fair values but now provide a good reason to be optimistic about the future.