Two Tales of 2020 Bond Returns

Economic Blog Posted by lplresearch


US investment-grade bonds had a solid 2020 despite a tumultuous year overall. The broad Bloomberg Barclays US Aggregate Bond Index had a total return of 7.5%—not as strong as 2019’s 8.7% but its fifth-best year in the last 20 and the best two-year stretch since 2001–02.

“It was another good year for bonds in 2020, and some of the highest-quality areas of the bond market performed the best,” said LPL Financial Chief Market Strategist Ryan Detrick. “But like stocks, it was really the tale of two 2020s—before and after March 23.”

As shown in the LPL Chart of the Day, by the time 2020 wrapped up, there wasn’t a whole lot of dispersion among major segments of the bond market—but for riskier credit-sensitive bonds in particular, the path to getting there was a roller-coaster ride.

View enlarged chart.

Bonds provided several highlights in 2020:

  • In general, more interest-rate sensitive sectors, such as Treasuries, Treasury Inflation-Protected Securities (TIPS), and investment-grade corporates were among the sector leaders for the year.
  • Despite the large bounce back by some of the most credit-sensitive bond sectors, such as emerging market debt, bank loans, high-yield corporates, and preferreds, the bond sectors didn’t match the rebound in the S&P 500 Index. At the same time, for income-oriented investors, these higher-yielding sectors did offer advances in 2020 while still providing an attractive yield.
  • Treasuries saw only a slight advance after March 23, 2020, but their performance over the first half of the year highlighted their potential value as a portfolio diversifier.

We do not expect 2021 to look like 2020. Treasury yields have started the year significantly lower than in 2020 and may rise as the economy continues to turn around and inflation normalizes or even starts to run a little hot. Based on these factors, we have a year-end 2021 forecast range of 1.25–1.75% for the 10-year Treasury yield. If we hit this range, it would create a headwind for rate-sensitive areas of the bond market. (Bond prices fall when their yields rise.) High-quality bonds are likely to continue to provide some downside protection if the stock market becomes volatile again, but after two consecutive years of solid returns, bond investors may need to lower their expectations.


This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index and market data from FactSet and MarketWatch.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value
View All Posts