- Long dated US treasuries do well in times of market volatility and provide their best returns during bear markets.
- US debt is viewed as a safe haven when markets are in turmoil and investors flood into them.
- Recessions are deflationary and inflation expectations plummet. This increases the expected real return on bonds.
- Lower growth and lower inflation lead to a lower federal funds rate. This rate is transmitted throughout the yield curve and results in lower yields across multiple durations.
- A potential ease in selling pressure from China will also help propel bonds higher.
Markets kicked off 2016 with volatility in the equity indices and continued pain in commodities. Recent price action and economic indicators tell our team at Foundation Investing that there’s a high probability the cycle has turned. We are now in bear market territory with an increased probability of entering a recession towards the end of the year.
Smart investors don’t need to be alarmed though. There is as much opportunity in a bear market as there is in a bull, especially for those who are flexible and willing to go long or short. And even if you don’t like to plunge to the short-side, there are investments available that will not only keep your wealth safe, but also make you a handsome return when things start to get ugly.
One of these investments is 20+ year long US treasury bonds.
There are many ways to play this trade. You can buy the actual bond, bond futures, or just buy shares of TLT, the 20+ year long bond ETF. The individual investor is best off purchasing TLT because it’s the most accessible and easiest to execute. (Keep reading….)