After a Terrible Year for Bonds, the Outlook Is Better (Published 2022) (2024)

This has been an awful year for U.S. bonds — so bad that 2022 may end up as the worst calendar year in history.

But what do the terrible bond returns in 2022 mean for the future?

Recall the old warning: Past performance doesn’t guarantee future returns. That’s emphatically true now for bonds.

These past poor returns definitely don’t imply that you should avoid bonds now. With some caveats, which I’ll come back to, the fundamental math of bond returns suggests that 2023 will be much better than 2022.

At the very least, a repetition of the shocking level of the losses of 2022 isn’t likely. What’s more, after the big downturn of the last year, a major rebound is certainly possible.

“The prospects for long-term Treasuries are looking very good right now,” said Michael Contopoulos, director of fixed-income strategy at Richard Bernstein Advisors. He presents a reasonable argument that they could turn out to be the best asset class — better than stocks or commodities — of 2023.

I wouldn’t buy bonds, or any other asset, as a speculative bet. But for long-term investors, the basic reasons for buying bonds — solid value and reasonable yields — are becoming evident again.