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Aug. 8, 2020, 8:47 a.m. EDT

Why would anyone own bonds now? There are at least five reasons

Bonds play a role in a portfolio, even amid historically low interest rates

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By Ben Carlson


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Here’s 2020 finance trivia for you: What’s the better performer this year — the red-hot Nasdaq 100 index of tech behemoths or boring, old long-term bonds?

The Nasdaq 100 ETF /zigman2/quotes/208575548/composite QQQ +0.41%  is up an astonishing 25.5% this year during a pandemic, and that’s including a 29% peak-to-trough drawdown. But the long-term treasury ETF /zigman2/quotes/206026314/composite TLT -1.47% is up 27.3%.

Long-term bonds are outperforming tech stocks in one of the weirdest years ever in the market.

Stocks get all the love and attention because they’re more exciting and sexier, but bond returns this year are off the charts when you consider how low yields were coming into 2020:

These were the starting yields for these funds coming into 2020:

And now the current yields following the run-up in performance:

According to Deutsche Bank, we’re now looking at the lowest government bond yields in well over 200 years:

Many investors have been saying for years that rates can only go up from here, and they’ve done nothing but fall more. And maybe they’ll fall even further and possibly go negative (something I would not rule out if the pandemic worsens).

But eventually short-term movements in rates will wash out and the long-term returns will be based more on the current bond yields. When you consider how paltry those yields are, investors in fixed-income are guaranteed to see minuscule returns from here over the long haul.

So why would you even own bonds with rates this low?

It’s a fair question a number of investors are asking themselves as we stare at generationally low yields in safe assets.

/zigman2/quotes/208575548/composite
US : U.S.: Nasdaq
$ 305.52
+1.24 +0.41%
Volume: 19.33M
Dec. 4, 2020 4:00p
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/zigman2/quotes/206026314/composite
US : U.S.: Nasdaq
$ 155.20
-2.31 -1.47%
Volume: 12.73M
Dec. 4, 2020 4:00p
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