Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 199

Unpacking the '30-year bull market' in bonds

The financial press regularly quotes someone referring to 'the 30-year bull market in bonds'. Often, they’re reporting the latest prediction that this amazing period of (alleged) bond market prosperity is about to come to a crashing end. This article reviews the history of bond yields, prices and returns to explain what the bond market has really done for the past few decades. This can help to understand what various future scenarios might actually mean.

The problem with characterising the past 30 years or so as a 'bull market in bonds' is that it’s not an accurate depiction. Reality simply doesn’t support the statement.

Always worth par on maturity

Most commentators speak of the long-run trend in US bond yields when they refer to the 30-year bull market. The following chart (courtesy of Macrotrends) gives a 54-year history of 10-year US Treasury bond yields.

Bond yields were at an all-time peak 36 years ago and have in recent years been at all-time lows. (The peak was in 1981 and the low point in 2012.) Commentators naively infer that bond prices must, therefore, be a lot higher because when yields fall, prices rise. Ipso facto, we’ve had a multi-decade bull market in bonds!

However, it’s wrong to simplistically turn a long-term change in yields into an on-going bull market. A simple question will help you understand why it’s not possible: when it matures next month, what will be the price of the May 2017 US Treasury bond that was issued in 1987 at par value of $100? If there’s been a 30-year bull market then surely this bond is now worth thousands of dollars.

That’s not the case. There are few things you can predict with confidence in financial markets, but that the May 2017 Treasury bond will mature at exactly $100 is certain. The following chart, courtesy of Bloomberg, shows the full history of the price of the May 2017 Treasury bond since its issue in 1987.

The price of this bond did increase early in its life, peaking at just under $150 value in 2003. So, you could say that there was a bull market over its first 16 years, albeit with some rather large ‘corrections’ in 1994 and 1999. There was then a clear bear market from 2003 to 2006 and overall the period from 1998 until 2012 looks more like a range trade in the $130-145 region. Since 2011 the bond’s price has been in rapid descent to the current level of just under $101. The remaining $1 above par will be discarded by the market over the next couple of weeks and it will pay holders at maturity the same $100 at which it was issued 30 years ago.

Since the definition of a bull market is a persistent increase in asset prices, the May 2017 US Treasury bond has not been in one for at least the past 14 years. This is especially so if you consider real, or inflation-adjusted prices. $100 is not worth as much in 2017 as it was back in 1987. Furthermore, the same could be said of every bond that has matured during the last 10, 20 or 30 years. They’ve all matured at par value. Not one bond has paid investors an inflated price. If that’s a bull, then I wouldn’t bother entering it in the Royal Easter Show!

More subdued over time

Now, let’s combine the trend in yields and prices to the history of bond market returns since the early 1980s. What we find is that the years of great returns are front loaded. There was a bull market in bonds at one time, but it was in the early years of this 30-year period. Since then, returns have been more subdued over time:

  • During the mid to late 1980s, rolling five-year returns from the US Treasury market were often above 15% pa and always in double digits.
  • By the 1990s, things had changed and returns were running in the 7.5–10% region.
  • Since the late 1990s, rolling five-year bond returns have been closer to 5% pa and, over the past half dozen years or so, investors have received in the region of 2-3% pa.

Astute readers will compare these return outcomes with the 10-year yield chart and notice something remarkable. When yields were high, so were returns! However, as yields declined, although initially this gave a boost to total returns, ultimately it resulted in lower returns.

Does that sound like a long-term bull market? Owners of bonds have made good returns in the past 30 to 36 years. But it’s been from the yields they’ve been paid, not from any long-lasting capital price appreciation.

What next for bond returns?

The long-run trend in declining yields appears to have ended about five years ago. Since then we’ve had two small ‘bear markets’, during the taper tantrum in 2013 and in response to stronger growth expectations in 2016. The latter has petered out, with Treasury yields back to the low end of their post-election range.

But what if we are in for a period of rising bond yields? If that happens, then investors with long-duration investments will experience potentially significant negative returns for a time. However, a sustained rise in bond yields will gradually result in rising bond returns in exactly the same way as the historical trend has been for falling yields to gradually reduce returns.

And along the way, whatever bond prices do in 2017 or any other year, every bond will pay back its par value at maturity (assuming no defaults). Never let the scaremongers divert your thinking from the simple mathematical reality of how bond markets behave.


Warren Bird is Executive Director of Uniting Financial Services, a division of the Uniting Church (NSW & ACT). He has 30 years’ experience in fixed income investing. He also serves as an Independent Member of the GESB Investment Committee.


A journey through the life of a fixed rate bond

Briefly, on the role of government bonds

Watch for one rule that applies to all assets


Most viewed in recent weeks

After 30 years of investing, I prefer to skip this party

Eventually, prices become so extreme they bear no relationship to reality, and a bubble forms. I believe we are there today, not for all stocks but for many in the technology space.

Australian house prices: Part 2, the bigger picture

There is good reason to believe the negatives will continue to outweigh the positives over the next 12 to 18 months. There is more concern about house prices than the short-term indicators suggest.

How to handle the riskiest company results in history

It is better to miss a results bounce and buy after the company has delivered than it is to step on a landmine. With such uncertainty, avoid FOMO by following these result season investing tips.

Australian house prices: Part 1, how worried should we be?

Three key indicators are useful for predicting the short-term outlook for house prices, although tighter lockdowns make the outlook gloomier. There is enough doubt to create cause for concern.

Welcome to Firstlinks Edition 369

Imagine you had perfect foresight about COVID-19 at the start of the year. You correctly foresaw that the global pandemic would kill over 700,000 among 20 million infections by August. In Australia, borders would close, cities would be locked down, most mortgagors would be on income support and companies would be allowed to trade while insolvent. You then had to guess how much the stock market would fall. Would you say about 10%?

  • 6 August 2020

The rise of Afterpay and emergence of a new business model

Sometimes the simplest ideas are the best. The founders of Afterpay stumbled on the attraction for consumers of paying by instalments, and now retailers must offer the facility or lose business.

Latest Updates


The 'Heady Hundred' case for unglamorous growth

Checking global stocks with higher prices than the FANGAM stocks but weaker margins and growth identified almost 100 companies. Astonishingly, the ‘Heady Hundred’ are valued at over US$3 trillion.


Share Purchase Plans brickbats and bouquets

Many Share Purchase Plans leave large gains on the table for institutions, but some companies are handling them more equitably. As a shareholder, check if your company receives a pass or a fail.


Three things we have learnt about listed companies in 2020

Many companies have strengthened their balance sheets but their soundness can be directly correlated to the duration of the pandemic. What lessons has 2020 revealed coming into reporting season?

Investment strategies

What does the 'fear gauge' VIX really mean?

The VIX as a measure of risk has a place in equity markets in interpreting market sentiment, but it is overly simplistic to think it can represent volatility in equities as a whole. Just what is it?


Where we see growth opportunities in software stocks

Financial software companies have favourable attributes and industry tailwinds that may see investors rewarded, especially with super funds driving for greater efficiencies and better member experiences.


Five ways to use the family home for retirement income

The family home is the bedrock on which many retirement plans sit, with special tax and social security benefits. Many products generate an income stream from the home to make retirement more comfortable.



© 2020 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.