Unprecedented Three-Year Bond Returns Decline Hits US Treasury Market

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In an unprecedented turn of events, the 10-year Treasury bond is poised for a third consecutive year of losses in 2023, marking a first in the 250-year history of the United States. According to strategists at Bank of America, the return for investors in this bond has so far dipped to negative 0.3% in 2023, following a significant 17% drop in 2022 and a 3.9% decline in 2021. This downward trend, they argue, signifies a remarkable 40% surge in U.S. nominal GDP growth since the COVID-19 pandemic lows of 2020, a figure that includes both growth and inflation.

The bond market has taken a hit this year as the Federal Reserve persists in its campaign to hike interest rates in an attempt to rein in inflation. Michael Hartnett and his team of strategists predict that the big picture for the 2020s, in contrast to the previous decade, will feature lower returns from both stocks and bonds. This projection is based on the current political, geopolitical, social, and economic trends, which they believe will continue to impact the financial markets.

U.S. 10-Year Treasury Bond Set for Historic Third Year of Losses

Historical Downtrend

For the first time in 250 years of U.S. history, the 10-year Treasury bond is poised to experience a third year of losses in 2023. According to strategists at Bank of America, led by Michael Hartnett, the return for investors in this bond stands at a negative 0.3% as of 2023. This follows a 17% slump in 2022 and a 3.9% drop in 2021.

The Impact of Growth and Inflation

This historic downtrend reflects a staggering 40% increase in U.S. nominal GDP growth, factoring in both economic growth and inflation, since the COVID lows of 2020. The Federal Reserve’s ongoing interest-rate-hiking campaign, aimed at controlling inflation, has contributed to the pressure on bond returns this year.

Hartnett and his team predict a continuation of this trend due to the current political, geopolitical, social and economic climate, which is resulting in lower stock and bond returns compared to the previous decade.

Stock Market Performance

This year has seen a stronger performance in the stock market, particularly within the technology sector. However, this growth has been largely restricted to U.S. stocks, with global market breadth described as "breathtakingly bad" by the analysts. Market breadth, or the number of stocks actively participating in a rally, is the worst it has been since 2003 for the MSCI ACWI, a benchmark that represents large- and mid-cap stocks across 23 developed and 24 emerging markets.

Fund Flows

In terms of weekly fund flows, Bank of America reported that $10.3 billion went into stocks, $6.5 billion into cash, and $1.7 billion into bonds, with a drain of $300 million from gold.

Current Bond Yield

As of Friday, the yield on the 10-year Treasury was holding steady at 4.102%. This is despite data showing the U.S. economy generated 187,000 jobs in August. However, the unemployment rate increased to 3.8% from 3.5%, and job gains for July and June were revised downwards.


The historic third-year loss for the 10-year Treasury bond could be a warning sign for investors about the potential for lower returns in the current economic and political climate. With the Federal Reserve’s ongoing interest-rate hikes, investors may need to adjust their strategies to navigate the challenging market conditions. The concentration of market growth within U.S. stocks, especially in the technology sector, also highlights the importance of diversification in investment portfolios. Lastly, the shifts in fund flows illustrate the dynamic and rapidly changing nature of investment preferences, underscoring the need for investors to stay informed and adaptable.

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