The futility of expecting bond returns over the next decade

Several quants around the blogosphere have discussed the future of portfolios blending equities with bonds to reduce volatility without lowering returns.  The tailwind of interest rates falling from 20% to zero has made these strategies very attractive.  The consensus view is for under-performance as bond yields reach the lower bound.

Now there is a qualitative analysis to back those opinions.  Leuthold Weeden Capital Management (Doug Ramsey, Eric Weigel) recently published an article at advisor perspectives showing that “the correlation between current yields and the subsequent 10-year total return is a stunning 0.96 based on monthly data back to 1930!”.

In summary, bonds are likely a poor home for long-term money over the next decade.

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