Graphic: Long-term Treasuries a shelter from the storm
Long-term Treasuries preserve capital during market downturns, leaving more capital to put to work when the bulls return.
Less severe: The S&P 500 return has been negative 38% of the months since the start of 2000. During those negative months, the average return of long-term Treasuries was 1.8%; 2.5% when equities lost more than 5%. Negative periods for long-term treasuries have been as frequent, but much less severe, losing more than 5% only seven times, while equities lost as much 25 times.
Rate-change immunity: The higher duration of the long-term Treasury index has had minimal impact on returns after increases in the Fed discount rate.
Downside protection: Looking at five periods of notable market downturns, long-term Treasuries moved counter to the S&P 500, as well as our model portfolio, as investors flocked to safer assets and higher yields.
Capital preservation: Over five bear markets, a 10% allocation to long-term Treasuries preserved on average nearly $30 per $1,000 invested. The S&P 500 returned an average 30% in the 12 months after.
*Bank of America Merrill Lynch 10+ year Treasury index. Returns over 1 year are annualized. Model portfolio: 70% S&P 500 index, 30% Barclays U.S. Aggregate Bond index. Source: Bloomberg LP
Compiled and designed by Charles McGrath and Gregg A. Runburg
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