U.S. bonds have worst quarterly return since 1981

The Bloomberg Barclays U.S. Aggregate Bond index, comprised of a broad range of fixed income securities, had a 3.4% negative return in the first quarter. Created in 1976, it was the worst quarterly performance since 1981's third quarter, when the Federal Reserve was in the midst of aggressively raising rates to combat high inflation.

The recent performance is primarily attributed to higher long-term yields. During the quarter, the 10-year Treasury yield rose by about 82 basis points to 1.74% — a better than 90% change in the yield.

Looking out over the next couple of years, economists expect 10-year yields to further increase. By the end of 2021, the consensus estimate is 1.71%. But looking to the end of 2022, the collective expectation is for about a 30-basis-point rise to 2.02% and a further 18-basis-point climb by mid-2023 to 2.2%.