Gold Benefits from Bond Devastation

Long-term U.S. Treasury bonds, once seen as one of the world’s safest investments, have lost their aura of invincibility after devastating losses for investors during what Bank of America has called, “the greatest bond bear market of all time.” Prices for long-term bonds, particularly 20- and 30-year bonds, have plummeted since the summer of 2020 when inflation began heating up, which was followed in 2022 and 2023 by aggressive Federal Reserve increases in short-term interest rates. A 30-year Treasury bond that was yielding only 1.2 percent in July of 2020, lost much of its attractiveness by January 2024 when one-year Treasury bills were yielding more than four times as much at 5.5 percent. Some 30-year U.S. Treasuries lost half their value over that time frame. Even a diversified portfolio of long-term Treasury bonds offered investors little protection. Over a three-year period through the end of 2023, the iShares exchange traded fund of Treasury bonds with maturities of 20 years or greater posted a decline of 33 percent.

This collapse in bond prices was largely to blame for the failure of five commercial banks in the United States in 2023. It also devastated the portfolios of individual and institutional investors who may have thought they were well diversified, and, importantly, hurt the reserves of central banks that were major holders of U.S. government debt.