Globally, inflation is running near 3%. And 87% of the world’s fixed-rate bond investments yield less than 5%:
Only 13% of global bonds offer returns north of 5%. (Source: Bloomberg)
That means bonds “real” annual return – net of inflation – is 2%. That’s before high transaction costs to buy and sell bonds or paying taxes on your bond income.
The return for investors, even for a safe-haven investment, is too low. Bonds will only assert their vestigial “safe-haven” status if there’s a stock market crash. (At that point, trust in everything else will have disappeared.)
For now, bonds offer downside protection with no upside.
Poor bond returns are also what has been blowing up the traditional 60/40 portfolio mix of stocks to bonds. Stocks for the past three years have been a better bet, even for the pile of cash you’re expecting to outpace inflation – the defining factor in our “terrifying bull market” thesis.
If Trump and Bessent get their way and the Fed pushes rates even lower this year – and we don’t enter into a sustained bear market in stocks – the pressure on Treasurys will be even greater.
~ Addison
P.S. Later today on Grey Swan Live, we turn to a corner of the capital markets usually reserved for well-connected investors: the pre-IPO space. Companies like SpaceX and Anduril have caught our attention as investments, but they’re not officially publicly traded.
Our friend Matt Milner over at Crowdability has created a way to get access to these companies before they go public – and at the valuations where institutional investors are able to invest today.
So mark your calendar for 12 p.m., ET today!
