In his latest column for Barron’s, Mark Hulbert warns that “a careful analysis of the bond market leads to the same conclusion as six months ago: Long-term bets in the U.S. Treasury market would certainly appear to have a low probability of success.”
According to Hulbert, the current 30-year Treasury yield (4.3%) isn’t nearly high enough to compensate investors for tying up their money for 30 years. Based on Yale economist Robert Shiller’s data, long-term Treasuries have exceeded inflation by an average of 2.4 percentage points per year over the last 140 or so years, a healthy outperformance, Hulbert notes. But “given that the 30-year yield currently stands at just 4.3%, this means that just 1.9 percentage points of its current yield represent compensation for inflation over the next 30 years,” he says. “That’s ridiculously low, of course.”
“Over the last five decades in the U.S.,” Hulbert continues, “the lowest that the consumer-price index has averaged over any trailing 30-year period is 3.2% annualized. Its overall average has been 4.5%.” Take that lowest figure, the 3.2%, and add the 2.4% historical T-bond risk premium, and you should be getting at least 5.6% for a 30-year Treasury to be worth your while, he says. And, he adds, given all of the money the government has pumped into the economy, “it’s difficult to imagine that, in the wake of such inflationary policies … inflation would be markedly lower, on average, over the next 30 years than it has ever been in recent decades.”
As for those who might try to do short-term bond trading to try to capitalize on falling T-bond yields, Hulbert also offers a warning: “Timing the bond market is extremely difficult,” he says. “Virtually none of the bond timing newsletters tracked by the Hulbert Financial Digest have been able to beat a buy-and-hold over the long term. Over the last 15 years, for example, not one has been able to do so, in fact. The same goes for those for which 10 years of data exist. And over the last five years, just six of 33 bond timing strategies have beaten a buy-and-hold — fewer than one in five.” His research shows that timing the bond market is much harder than trying to time the stock or gold markets, Hulbert says.