Bond Markets Change
Strength and Weakness in 2008 vs. 2009
A look back at 2008 and 2009 shows how dramatically
strength and weakness can shift in the bond
markets.
The table below lists the returns of various fixedincome
indexes in 2008 and 2009, and the returns
(shown below) reflect almost a mirror image.
They are sorted by lowest to highest returns in
2008.
2008: Government Bonds & Treasuries
In 2008, investors embraced a “flight to quality,”
pouring money into US Treasury Bonds and very
short term vehicles. This pushed up prices of
government bonds as corporate bonds suffered,
particularly lower quality, or high yield bonds.
Yields on government bonds and money markets
fell to astonishingly low levels.
2009: Corporate Bonds & High Yields
In 2009, the situation reversed course. Seeing
opportunity in the higher yielding corporate
sphere, and perceiving an improvement in the
economy, investors gained confidence and pulled
money out of government bonds and back into
corporates.
Moreover, yields on government bonds were so
low that even a small bump in yields put downward
pressure on government bond prices.
Investors who continued to hold their long or
intermediate term government bonds through the
whole of 2009 would have little or nothing to show
for it. Meanwhile, corporate bonds, especially
high yields, charged ahead in 2009 after having
been pummeled the previous year.
One lesson to draw from this is that no one has
a crystal ball when it comes to the bond market,
and simply looking at calendar year performance
does not tell you what will do well or poorly the
following year.
Maneuvering the capricious fixed income markets
takes a nimble and flexible investment approach
like the Flexible Income Strategy.
