Risk-free bonds: historic losses in the United States

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The tightening of monetary policy by central banks is leading to a general rise in interest rates, including for long maturities. The rise in rates reduces the price of bonds already issued. If the carry does not compensate for this price effect, the investment will have a negative performance.

The Bloomberg US Treasury index, which represents the performance of US Treasury bonds, with the exception of the shortest maturities, has lost more than 8% from its summer 2020 high, a record since the inception of the index in 1973.


The average yield on US Treasury bonds is now 2.2%. If rates were to remain at current levels, it would take almost four years to make up for the losses accumulated since early August. But the most likely outcome is that rates will continue to rise over the next few quarters and weigh even more on performance. With an average duration close to 7, a 30 basis point increase would be enough to erase another year of carry.

What will be the impact of this decline on household wealth? Bond investments represent less than 10% of households’ financial assets, far behind equity investments, pension rights and bank deposits. Real estate assets represent four times these bond assets. It is therefore equities and real estate that will have the most significant impact on household finances.

See also: https://latribune.lazardfreresgestion.fr/en/eurozone-inflation-still-accelerating/


The opinion expressed above is dated March 18, 2022 and is subject to change.

*Sources : Bloomberg and calculation from Lazard Frères Gestion

As of : March 18, 2022

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