Government Bonds: A Decade Of No Real Returns – May 31, 2022

A just-published report updated our long-term outlook for capital market returns. Despite widespread price corrections year-to-date, the 10-year outlook from current levels is still unappealing as valuations remain elevated for equities, government bonds, credit, real estate, collectibles and many other assets.

Bonds will remain a significant drag on overall performance. The massive distortion in bond valuations has meant that real total returns are now already down to their early-2010s levels, providing a powerful reminder of how painful higher yields can be when there is little-to-no coupon, or worse negative yields. Credit will outperform government bonds over the forecast horizon.

Global equity returns will be much lower than in the past decade given the higher starting point for valuations and earnings. Equity market leadership should shift from the U.S. to Europe and emerging markets, as huge U.S. earnings tailwinds unwind. And the U.S. dollar is likely to depreciate steadily from its current high level as the U.S. share of global GDP declines and non-U.S. risk assets outperform.


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