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Why Own Bonds When Rates Are So Low?

By Nick Maggiulli
Of Dollars and Data

With 10-Year U.S. Treasury Bonds currently yielding less than 1% annually, the question on so many investors’ minds is: Why should I own bonds at all?

And I understand the sentiment. If we compare the starting yield on 10-Year U.S. Treasury Bonds to the real return on U.S. bonds over the next decade, there is a positive relationship.

From 1926-2010, a lower starting yield generally meant lower bond returns over the next 10 years.

And with 10-Year U.S. Treasury Bonds currently yielding only ~0.79%, returns for the coming decade are looking pretty grim.

So, if you are nearly guaranteed to reduce your future purchasing power when buying U.S. bonds today, why own them at all? Following are three reasons to consider:

  1. Bonds Tend to Rise When Stocks Fall
  2. Bonds Can Provide Added Return Through Rebalancing
  3. There Is No Alternative

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