Bonds Defeat Stocks For the First Time Since Prior to the Civil War

According to, the largest gains in bonds in nearly 10 years have overtaken returns on stocks over the last 3 decades. This is the first time that this has occurred since before the American Civil War. Bonds reportedly have become assets to buy because the US inflation rate had a 1.5% average this year and the Federal Reserve made the decision to keep target interest rates for overnight loans between banks at close to 0 through 2013.

Bianco Research reports that long-term government bonds have added 11% annually on average over the last thirty years—defeating the S & P 500’s 10.8% rise. Prior to this last 30-year period, stocks had been outperforming bonds over every 3-decade period since 1861.

More 2011 facts as reported by Bloomberg:

• Per Bank of America Merrill Lynch indexes, fixed-income investments moved forward 6.25%–nearly 3 times the 2.18% increase in the Standard & Poor’s 500 Index through the second to the last week of October.
• Debt markets are on target to return 7.63%–the most in 9 years.
• Bank of America Merrill Lynch’s U.S Master Treasury index reports that US government debt has risen 7.23%.
• There has been an 8.17% return on municipal securities
• Corporate notes have experienced a 6.24% gain
• Mortgage bonds have gone up 5.11%
• There has been a .25% return on the S&P GSCI index of 24 commodities

Meantime, there continues to be resistance to purchasing debt. According to Bloomberg, the bears did not predict that Americans would continue to boost savings while paring debt. A lot of that cash ended up in fixed-income markets while investors and banks continue to look for high quality-debt as unemployment stayed constant. Meantime, Europe’s own financial crisis appears ready to send the world’s economy into another meltdown.

While the US savings rate has tripled since 2005 at approximately 3.6% and averaging 5.1% since December 2008, debt mutual funds have brought in $789.4 billion. Since the end of last year, banks have upped up the holdings of government-backed mortgage securities and Treasuries to $1.68 trillion. Foreign investors have also upped their investment in Treasuries ($4.57 trillion in August). Meanwhile, government bonds are expected to experience their largest gains since 2009 with defaults dropping last quarter and states and cities lowering their expenses rather than missing making debt payments.

Over the last few years, our stockbroker fraud attorneys have witnessed many investors sustain financial losses, many of which were incurred as a result of broker misconduct and other acts of securities fraud that contributed to the economic collapse. Shepherd Smith Edwards and Kantas LLP represents institutional and individual investors throughout the US. We also represent a number of clients abroad.

Say What? In 30-Year Race, Bonds Beat Stocks, Bloomberg, October 31, 2011

More Blog Posts:
Wells Investment Securities Agrees to $300,000 Fine by FINRA for Alleged Use of Misleading Marketing Materials for REIT Offerings,Institutional Investor Securities Blog, November 23, 2011

Morgan Stanley Faces $1M FINRA Fine for Excessive Markups and Markdowns on Corporate and Municipal Bond Transactions, Institutional Investor Securities Blog, September 17, 2011

Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme, Stockbroker Fraud Blog, November 11, 2011