Rates on US Bonds have been falling generally for more than 40 years, prompting many to coin the term: “The 40-Year Bond Bull Market.” Below is the FRED chart depicting 3-month T-Bill rates since 1940. The bond bull started in June 1981. In the forty years proceeding this bond bull, rates were doing just the opposite … rising generally, which we’ll call the “The 40-Year Bond Bear Market.”
Today on MFO Premium, we went live with several new evaluation periods to help assess the impact of rising rates, if that ever happens again. Fact is, most bond funds did not exist prior to 1981, including many of today’s largest bond funds by AUM. Vanguard’s Total Bond Market Index (VBMFX), the largest core bond fund with $302B, launched in January 1987. Only four bond funds in our Lipper database existed back in 1960, one being Putnam Income (PINCX).
Here are the new Display Period options in MultiSearch, the site’s main tool:
- SEC – 193406 To Present, which covers the period from inception of U.S. Securities and Exchange Commission,
- Act 40 – 194008 To Present, which covers the period from inception of the Investment Company Act of 1940,
- Sarbanes-Oxley [SOX] – 200207 To Present, which covers the period from inception of Sarbanes-Oxley Act,
- Buybacks [SEC 10b-18] – 198211 To Present, which covers period from inception of SEC Rule 10b – 18,
- Dodd-Frank – 201007 To Present, which covers the period from inception of Dodd-Frank Wall Street Reform and Consumer Protection Act,
- Rising Rates – 200406 To 200702, which covers the rare period of rising rates since 1981 when the 3-month T-Bill went from 0.3 to 5.3%,
- 40-Year Bond Bear – 194001 To 198105, which covers the 40-year bond bear market with rates rising generally,
- 20-Year Bond Bear – 196001 To 198105, which covers the 20-year bond bear market with rates rising generally,
- 40-Year Bond Bull – 198106 To Present, which covers the 40-year bond bull market with rates falling generally.
- Lipper Database – 1960 – Present, which represents start of Refinitiv’s Lipper Global Data Feed (LGDF), the database used in MFO Premium.
Previously, we announced the Normalization option, which covers the most recent period when Fed attempted to raise interest rates closer to normal, 201601 – 201812.
While it’s difficult to analyze actual funds during these older periods, indexes are available in the MultiSearch database for the S&P 500 Total Return (SP500) and Long Government Bonds (LGovBnd) back to 1926 and US Aggregate Bonds (USBond) back to 1960, as detailed in A Thirty Year Proposition.
Setting the Rising Rates period shows an annualized percent return (APR) for US Aggregate Bonds from June 2004 to February 2007 of 4.8%. Unfortunately, the excess return was only 1.3%. Similarly, excess return for the Normalization period was 1.0% and a less than zero -0.5% for the 20-Year Bond Bear.
In contrast, APR has been an attractive 7.6% and excess 3.7% for the 40-Year Bond Bull, which helps explain why Rob Arnott stated not too long ago that most of the return has been bonds. The contrast is greater with long bonds, which have rewarded investors with 9.3% APR since June of 1981 and 5.4% excess. During the 40-Year Bond Bear? Just 2.3% APR and -1.2% excess.
Fortunately, more than a dozen mixed asset funds existed back in 1960, including Dodge & Cox Balanced (DODBX), Vanguard Wellington (VWELX), and Fidelity Puritan (FPURX), which are worth examining and contrasting during the bear and bull portions of the bond market.
Another new feature is the first “Model” portfolios in MultiSearch, which include Dodge & Cox Allocations, The Ivy Portfolio, the simple 5 asset class portfolio Mebane Faber wrote about in 2009, and 50/50 SPY/TLT (aka “Zig/Zag”), which frequent MFO Discussion Board contributor bee coined. These can be found under Pre-Set Screens in MultiSearch.
Finally, other new Pre-Set Screens include:
- Vanguard Regional ETFs,
- iShares Developed Markets Countries ETFs,
- iShares Emerging Markets Countries ETFs,
- Expanded Reference Indices, now totaling 56 each assigned “convenience” tickers, like SP500, USBond, Value, HighYld, Ginnie, and Cash.
- Largest Funds, by AUM in each category, arranged in the 11 SubTypes (US Equity, Mixed Asset, Global Equity, International Equity, Sector Equity, Commodity, Alternative, Trading, Bond, Muni Bond, and Money Market).
All of these provide quick and easy insight into broad market risk and return metrics.
Please enjoy the new features!