We’re excited to launch a new mini-series where we reflect on key financial lessons from 2024, offering insights into market trends, economic shifts, and what they mean for investors. Each post will highlight a specific theme to help you stay informed and prepared for what’s ahead.

 

Lesson 1: Bonds Are (Nominally) Back

 

Over the past few decades, bond yields have experienced significant ups and downs, driven by evolving economic conditions. In the early 1980s, 10-year U.S. Treasury bond yields peaked at over 15%, reflecting high inflation and tight monetary policy.

 

Fast forward to the early 2000s: bond yields entered a prolonged decline, hitting historic lows after the 2008 financial crisis and during the COVID-19 pandemic. Several key factors contributed to this decline:

 

• Inflation: Lower inflation rates in the early 2000s led to reduced yields. However, recent inflationary pressures have driven yields back up as investors seek protection against decreased purchasing power.

 

• Monetary Policy: Central banks’ accommodative policies—lower interest rates and bond purchases—suppressed yields for years. But as central banks tighten to combat inflation, yields have risen.

 

• Fiscal Policy and Debt Levels: Rising government debt and fiscal deficits have increased bond supply and investor caution, contributing to higher yields.

 

Since 2021, bond yields have been climbing steadily, with the current 10-year Treasury yield reaching approximately 4.49% as of February 07, 2025.

 

Bonds are making a comeback, and understanding this trend is key for navigating the markets.

 

Stay tuned for the next post in our mini-series!