Long Bonds–Long or Short?

/Long Bonds–Long or Short?

Long Bonds–Long or Short?

Timely Portfolio has a great post about the magical long-bond.


The thesis he presents is clear: long bonds won’t achieve what they’ve achieved over the past 30 years.

I think this thesis is correct, but this statement of presumed fact doesn’t answer the real question: Should we invest in the long-bond over the next 30 years?

Investing is all about opportunity costs. It may be the case that the long bond will not achieve the same sort of Sharpe over the next 30 years, but perhaps it will achieve a higher Sharpe than alternative investment classes.

I don’t know the answer for investing in bonds, but one can look at historical bond data and get some perspective on what is possible.

For a full research report on the subject, Empiritrage has a new report called “The Truth About Bonds.”

Below is my favorite chart. This chart looks at the performance of JGBs when they first broke 1.80% in April of 1998. The absolute risk/reward isn’t amazing, but relative to equity it is magical.


The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

  • The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. Our full disclosures are available here. Definitions of common statistics used in our analysis are available here (towards the bottom).
  • Join thousands of other readers and subscribe to our blog.
  • This site provides NO information on our value ETFs or our momentum ETFs. Please refer to this site.

Print Friendly, PDF & Email

About the Author:

Wes Gray
After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.