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Both U.S. equities and fixed income markets have provided strong year-to-date returns. Such recent market conditions are not typical.

Yield Change Main

As discussed in our accompanying piece, global bond yields have dropped significantly since the beginning of the year. Of particular note, the bellwether 10-year U.S. Treasury yield fell from 2.83% at the end of 2018 to 2.07% halfway through 2019 — a sizable 27% reduction in the yield! This significant drop provided a boost to fixed income returns, with the U.S. Aggregate Index returning more than 6% from January 1 through June 30.

The chart above ranks the semiannual percentage change in 10-year Treasury yields since 1980 from lowest to highest. The percentage decline in yields over the first half of this year is the third largest over the period measured, though it’s exaggerated given the low-rate environment, particularly compared to the lofty rates of the early 1980s.

Still, what makes this occurrence more unusual is that the outstanding return from bonds occurred alongside very strong equity market returns. Yields fell sharply on concerns about the slowing global economy, while equities were recovering from the correction that occurred late last year. The result was that both bonds and stocks registered returns in the first half of 2019 that were well above their long-term averages.

Could it continue? It’s certainly possible. But the strong returns for both bonds and stocks in the first half of the year were unusual. At some point, investors should expect a return to a more normalized relationship between the fixed income and equity markets.

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.