Six years on, the bond market still hasn’t climbed out of the hole it dug in 2020. The iShares Core U.S. Aggregate Bond ETF hit its all-time high close of $99.96 back on August 4, 2020. As of last Thursday it sat at $97.49, meaning the fund that anchors most 60/40 portfolios in America has spent longer underwater than most equity bear markets even bother to last.
Adjust for inflation and the picture turns from disappointing to brutal. The $99.96 peak AGG hit in August 2020 carries the purchasing power of only $77.81 today. Put the fund’s current price of $97.49 on that same footing and it works out to roughly $75.90 in 2020 dollars, meaning a decline that looks like 2.5% on the ticker is closer to 24% once you account for what a dollar actually buys now. That is the difference between a bond fund having a rough stretch and a bond fund quietly handing back a quarter of its real value while getting called “safe” the entire time.
Morningstar put a harder number on the damage back in July. Their study found the 2020s mark the only stretch in 150 years of market history where a 60/40 portfolio’s decline hurt worse than an all-equity portfolio’s decline during the same crash. KKR made the same point earlier this year in blunter language, noting that government bonds have stopped behaving like shock absorbers.
The mechanism is not complicated, whatever anyone wants to dress it up as. Inflation eats the real return on a fixed coupon, and when the Fed can’t cut rates into that inflation, the price rally that used to rescue bond allocations during stock selloffs simply does not show up. That is what happened in 2022, and by Morningstar’s own account it still has not fully unwound.
We’ve been calling Treasury “trash” for retail investors since 2019, mostly to the sound of polite disagreement. It’s not an argument anymore. It is a receipt, with interest.
None of which means the apocalypse is next. Ray Dalio spent last Friday telling LinkedIn that Treasury Secretary Scott Bessent’s buyback plan is a symptom of a debt crisis he now pegs at three years away, give or take two, and he wants investors carrying 10 to 15 percent gold along with “a bit” of bitcoin to get ready for it. It is worth remembering that Dalio has been running some version of this warning for years, and the crisis keeps staying three years away. The correction here is not that bonds are fine. It is that a bad decade for bond math does not require anyone to be right about the end of the dollar system.
Bessent himself has spent this week providing the more immediate case study. Treasury announced Wednesday it would double its buyback of long-dated debt to at least $4 billion an operation, and yields fell hard on the news. By Thursday, Bessent was on CNBC promising the number could go higher still, telling Sara Eisen his department intended to “make a market” in the 30-year and arguing that current yields “don’t reflect market fundamentals.” He went further on the deficit itself, calling the $40 trillion debt milestone a figure with “nothing magic” about it and saying there was a “very good chance” the deficit under this administration has peaked, pointing to a fraud task force, cuts to state grant funding, and steady tariff income as the path to several hundred billion dollars in savings.
The bond market’s response arrived within a day. Yields resumed climbing Thursday afternoon, erasing most of the rally Bessent’s own announcement had produced less than 24 hours earlier. CNBC’s own newsletter had a name for it by the time the ink dried: the “Bessent Bid” wore off. One RSM economist put a sharper point on the mechanics, warning that suppressing yields through buybacks does nothing about the actual financing need behind trillions in government and hyperscaler debt, and noted that Fed Chair Kevin Warsh has expressed a preference for letting the open market set rates rather than have Treasury lean on the scale. That is a fight worth watching past this week, since Warsh delivers his first Jackson Hole address on Friday, and a Treasury Secretary who spent the week trying to talk yields down is not obviously singing from the same hymnal as a Fed chair who has said, in effect, that this is not his department’s job to do.
Which makes this week’s fretting easier to sort into categories, because everyone seems to be arguing over the same data from different angles. Ken Fisher’s firm just moved roughly $4 billion out of intermediate Treasurys and into 20-plus-year bonds, betting the long end of the selloff has gone too far. Bank of America’s Michael Hartnett is running the opposite trade, calling it “Anything but Bonds” and pointing to a $963 billion annual interest bill as reason enough to avoid the asset class altogether.
Morgan Stanley’s house view has been that 2022 was an anomaly and the strategy is self-correcting, citing 2023’s 17.2% return for 60/40 as proof. It is worth noting that even after that rebound, the bond side of the ledger still hasn’t reclaimed a high it set in 2020, nominal or otherwise, and it has lost a quarter of its real value in the meantime. Self-correcting is one word for it. Still underwater is another. A Treasury Secretary promising to make a market in the 30-year is a third.