Bonds for the long run? Super-safe Treasurys are crushing the S&P

Forget stocks — how about bonds for the long run?

Over the past 10 years, one would have been better off keeping their money in a bond product rather than in a broad equity ETF. Specifically, the popular Barclays long-term Treasury bond ETF (TLT) has risen 71 percent over the past decade, while the SPDR S&P 500 ETF (SPY) is up 64 percent.

Since the TLT generally throws off a higher dividend yield, the performance comparison including reinvested dividends is even more dramatic: The SPY has generated a one-decade compound total return of 102 percent, but the TLT has returned an additional 40 percent on one's initial investment.

While doubling one's money is nothing to sneeze at, it is striking that one could have done so much better in ultra-safe bonds. Government bonds are stereotypically considered the bowling lane bumpers of the investment world — the pick for those uninspired investors who, rightly or wrongly, favor safety over all else (where "else" is generally taken to mean "more money").

Yet as bond yields have staged a massive slide culminating, for now, in Tuesday's all-time low of 1.357 percent on the 10-year Treasury note, bond performance has been downright extraordinary. From the modern vista, buying bonds a decade ago, when the 10-year note yielded some 5 percent per year, looks like the trade of a lifetime.

This is especially the case given that stock market volatility has been significantly higher than bond market volatility since then, meaning that the reward-per-risk trade-off has been deeply superior in Treasurys.

At this juncture, opinions remain sharply divided over which asset class will perform best over the years to come.

For Eddy Elfenbein, editor of the Crossing Wall Street blog, the fact that the S&P's dividend yield of about 2.2 percent is far greater than the 10-year yield points the way to investing in equities.

"The math says stick with stocks," he said Tuesday on CNBC's "Power Lunch."

The issue is that the S&P dividend yield has generally been higher than the 10-year yield since August, and yet the TLT has outperformed the S&P by more than 20 percent over the past year, and by 16 percent in 2016.

When he takes the long view on the 10-year yield, Chris Verrone, technical analyst at Strategas Research Partners, notes that "we've seen people fighting this the entire way down. We heard at 3 percent that they'd never go lower, and we heard the same at 2 percent."

Yet with negative-yielding government bonds in Germany, Switzerland, Japan and other countries, "I think you circle 1.00 on your chart — that's where we think this is going," Verrone said Tuesday on CNBC.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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