AAII Investor Update: Bonds’ 30-Year Run

Posted on November 3, 2011 | Investor Update

“In 30-Year Race, Bonds Beat Stocks,” read a headline on Blooomberg.com earlier this week.

No, you did not read that wrong. Jim Bianco, president of Bianco Research, calculated an average annual gain of 11.8% for long-term bonds. Stocks lagged with an average gain of 10.8%. This has not happened since the Civil War, when the U.S. had a very different economy.

If you thought stocks, not bonds, were the best investment vehicles for beating long-term inflation, you’re right. This is still the case. The performance record of the past 30 years reflects two different events that combined to create a favorable environment for bond prices.

The first was interest rates. Ten-year treasury bonds yielded 15.8% on September 30, 1981, according to Bianco. Earlier today, the 10-year bond yielded 2.06%. Bond prices and interest rates are inversely related, meaning that as yields fell over the past three decades, bond prices rose.
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