TLT Leads Best Month for Bonds Since the 1980s

The biggest gains were made in rate-sensitive long-term bond ETFs. What’s next?

kent
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Research Lead
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Reviewed by: etf.com Staff
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Edited by: Sean Allocca

The last time the U.S. bond market had such a good month, Ronald Reagan was president and “Back to the Future” was playing in theaters.  

Market watchers who appreciate history, or investors and advisors who may use it to guide their decisions, found relief in November as the bond market not only turned positive for the year, but turned in its best monthly performance since the mid-1980s. 

TLT, Long-Term Bond ETFs Jump 9% or More 

Leading the way in November’s performance was long-term Treasury bond ETFs, such as the iShares 20+ Year US Treasury ETF (TLT), which jumped 9% as yields dropped (bond prices move in the opposite direction as yields).  

Investors willing to take more risk with ultra-rate-sensitive bond ETFs like the Pimco 25+ Year Zero Coupon US Treasury Index ETF (ZROZ) enjoyed a whopping price gain of 15% in November. This handily outperforms the stock market’s gain of 10%, as measured by the SPDR S&P 500 ETF Trust (SPY)

Perspective From U.S. Bond Market History 

Since 2021 and 2022 were both negative years for the bond market, and after this year’s persistent inflation pushed prices down further, it appeared that bonds may be headed for three consecutive years of price declines, which has never happened in the recorded history of the bond market.  

For perspective, there are only two instances in history, 1955-1956 and 1958-1959, where U.S. Treasury bonds fell in price for two consecutive years. 

Investment grade corporate bonds have seen two consecutive years of price declines only twice since 1928. The first instance was 1956-1957 and the second time was 1979-1980.  

TLT, Bond Market Outlook for 2024 

Based on history, 2024 may be a positive year for TLT investors and for the broader bond market. Since 1928, bond prices have risen 100% of the time in the year following two consecutive years of negative returns. The question that remains is just how positive the bond market could be next year.  

Many moving parts, particularly inflation and the growth rate (or lack thereof) for the U.S. economy, will determine the degree of any price appreciation seen for bonds in 2024. With a soft landing, or slower growth but no recession, bond prices may not appreciate much beyond their 2023 year-end range. But a recession could force the Fed’s hand to lower interest rates, which would push bond prices higher. 

To paraphrase Mark Twain, history does not repeat itself, but it does rhyme. The closest "rhyme" to today's inflationary environment was the 1979-1980 period, when inflation was 13.29% and 12.52%, respectively. What's remarkable is that inflation was still high in 1981 at 8.92%, and corporate bonds jumped 8.46%. In 1982, when inflation was a more reasonable 3.83%, bonds skyrocketed by 29.05%. 

TLT and other long-term bond ETFs would see greater price appreciation compared to the broader bond market in a falling rate, lower yield environment. 

For market watchers and investors holding long-term bond ETFs like TLT, November 2023 will be remembered as the month that turned things around. To be precise, the price bottom for TLT and other long-term Treasury bond ETFs still appears to have occurred in October, as we noted in our Oct. 26 article. 

Where the bond market goes from here is anyone’s guess, but if history has any bearing on the outcome, bond prices will likely be higher one year from now than they are today. 

Kent Thune is Research Lead for etf.com, focusing on educational content, thought leadership, content management and search engine optimization. Before joining etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. 

Kent holds a Master of Business Administration (MBA) degree and is a practicing Certified Financial Planner (CFP®) with 25 years of experience managing investments, guiding clients through some of the worst economic and market environments in U.S. history. He has also served as an adjunct professor, teaching classes for The College of Charleston and Trident Technical College on the topics of retirement planning, business finance, and entrepreneurship. 

Kent founded a registered investment advisory firm in 2006 and is based in Hilton Head Island, SC, where he lives with his wife and two sons. Outside of work, Kent enjoys spending time with his family, playing guitar, and working on his philosophy book, which he plans to publish in the coming year.