By Ryan O’Malley, Fixed Income Portfolio Strategist
Despite the Federal Reserve’s promise to keep the federal funds rate low and support the bond market via quantitative easing, interest rates have seen an acute increase since August 2020. The yield on the 10-year Treasury was 0.52% on August 4 and stood at 1.74% on March 31. Additionally, the U.S. Treasury yield curve has steepened dramatically since August, reflecting rising inflation or growth expectations. The “2s/10s” curve has steepened from around 0.50% to nearly 1.10% over the past year.
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The move higher in rates and steepening of the yield curve has resulted in negative total returns for bond investors. The Bloomberg Barclays U.S. Aggregate Bond Index returned -3.37% for the first quarter of 2021 and -3.56% from July 31, 2020 to March 31, 2021. These negative fixed income returns, along with concerns about runaway inflation, have led some to speculate that the long bull market in bonds has finally come to an end.