The year is only two months old, but already it’s been a rough one for US Treasuries. Year to date, the Merrill Lynch index that tracks the performance of long-term US Treasuries is already down over 6% with declines of more than 3% in both January and February. Treasuries have long been considered one of the safest assets along the investable risk curve, so investors typically don’t expect to see significant losses on their holdings in the space. To illustrate, over the last forty years, monthly declines of 3% have only occurred a little more than 10% of the time.In the last 17 month’s, however, we’ve now seen four occurrences!
Back to back declines of 3% in long-term US Treasuries are even more uncommon. The chart below shows the monthly total return in the Merrill Lynch 10+ Year Treasury Index going back to 1978. Each of the periods that are shaded in red indicates back to back monthly declines of 3%.In the last forty years, there have only been five prior occurrences. The most recent was in October and November of 2016, but before that, you have to go back to February and March 1994.Needless to say, these types of back to back declines are something that most investors are not used to.
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