Turning the Page on Bonds

Bond Bull is over

If you have been seeking unequivocal proof that the 30 year bull market for bonds is over, look no further than this WSJ headline: Bond-King Pimco Plans to Push ‘Alternative Funds’.

Over the last four months, investors in long-term U.S. Treasury bonds have lost about 15% on their investment.  The iShares Barclays 20+ Year Treasury Bond ETF (TLT) is down 20% from its high last summer.

Many investors still think of bonds as “safe” investments.  There are a couple of reasons for this.  First, they’ve been told that bonds are safe by some investment professionals and, second, because they are biased.  Specifically, they have fallen prey to something called “recency bias.”

When an investor doesn’t do his or her homework and mistakenly thinks that their personal experience is indicative of the future, their thinking is clouded with recency bias.

Remember when everyone was saying, “Buy real estate!  Home prices NEVER go down!”  These investors were so caught-up in their own experience, they forgot to do their homework — they forgot to study history.

This week I’d like to share with you some interesting commentary on the recent sell-off in the bond market and what to expect from this asset class in the future.

Ben Eisen on MarketWatch: “Bond market selloff looks a lot like 1994 and 2003

Tobias Adrian and Michael Fleming of the Federal Reserve Bank of New York: “The Recent Bond Market Selloff in Historical Perspective

Jim O’Shaughnessy in AdvisorPerspectives: “A Generational Selling Opportunity for the U.S. Long Bond O’Shaughnessy Asset Management

Barry Ritholtz from The Big Picture, “Proof the Bond Bull is Over: PIMCO Selling Hedge Funds

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