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Fixed Income

Cherry Picking 30 Year Bond Data?

Bloomberg posts an article about how in the last 30 years, bonds have beaten stocks. But turn the clock back 30 years ago, and what do you find?

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In 1981, the Volcker move had taken interest rates – and thus yields – to big highs. The 30 year was available at 15% yields, which means a return of 15% per year (sure, not compounded).

(Higher yields = Lower prices)

Given that, wouldn’t the 30-year bond have outperformed in any case? Equities in the US have returned around 12% compounded since then, I think. Perhaps a case of appropriately fitting data, one thinks?

In India, I don’t have enough data, but stocks have done better over the last 10-15 years.

  • austrian_man says:

    There is a twisted reason for this. Insatiable demand for US debt because of the dollar as the world reserve currency. Most of the foreign reserves were lent back to US reducing the interest rates even further. A borrowing binge ended hard with the popping of the housing bubble. Looks like the world needs more time to understand that there is something called marginal productivity of debt (additional debt to additional GDP) and adding more debt cannot solve the problem of resolving the debt.

  • Shankar says:

    It looks like taking a “black swan” type event and plotting a distribution around it. We could use such events to prove any trend.