Chart of the week
The illusion of safety
What does this chart show?
Over the last century, 10-year treasury bonds have earned ~0 after inflation and taxes1.
Why does it matter?
Treasury bonds and ‘safety’ are practically synonymous. They’re commonly used for reliable yield and to diversify portfolios, but the narrative belies the fact that bonds have two primary weaknesses that have destroyed their historical record - tax inefficiency and fixed coupon rates that are eroded by inflation.
As we are presently in a lost decade(+) period for treasury bonds2 with no clear end in sight, investors are ravenous for more return from their fixed income and are increasingly lured by alternatives like private credit3, but these alternatives have a risk profile like equities. These trends generally only end well for the managers selling these products.
The Bottom Line
Beware of the comfortable narrative - it’s not what you make, it’s what you keep after inflation and taxes.
Chart & Data Sources - Brian Jacobs of Aptus Capital Advisors
