A new study by Man Group challenges the prevailing view that high inflation is inherently detrimental to US Treasury bonds. Analyzing historical data, the firm found that when inflation stabilizes between 2% and 4%—the current environment—10-year US Treasuries have historically delivered an average annualized nominal return of 4% above inflation. Even when viewed through the lens of real returns, the picture remains positive under stable conditions.
However, the research highlights a critical threshold: bond performance deteriorates significantly if inflation accelerates rapidly. In scenarios where inflation quickens by more than 50 basis points over three months, 10-year Treasuries suffered a real annualized loss of 11.7%. The authors, including Peter Weidner, head of total return strategies, systematic, argue against writing off bonds entirely.
They contend that Treasuries have historically performed well when equities fell and can still deliver positive real returns even in a "higher for longer" inflationary world. The study suggests the current market reluctance to buy bonds may be misplaced, as the securities still offer value for long-term portfolios amid robust economic growth and persistent price pressures driven by factors like AI spending.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing