U.S. long-term bonds, exemplified by TLT.US, have seen negative returns for four consecutive years, driven by economic shifts, rising government spending, resilient inflation, and global geopolitical changes. Despite significant retail interest, illustrated by TLT.US’s market cap surge from $10 billion in 2019 to $60 billion today, four primary forces have intensified the bond market bear trend.
1. Economic Growth Dynamics
Post-2008, growth expectations shifted, as financial recovery stabilized real estate markets, bank balances, and consumer debt, reversing an era of zero-interest-rate policies. Zero rates are now viewed as a historical exception unlikely to reappear soon. This recognition has altered the bond market landscape, making low-yield long bonds less attractive relative to higher-yielding short-term bills. Current data points to softening conditions, with anticipated rises in jobless claims and minor production slowdowns following supply chain interruptions from recent hurricanes, yet the broader growth outlook remains strong.
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