The 10-year Treasury note has logged its worst five-year return in more than a century, according to Goldman Sachs Investors are hoping that a historically bad stretch for the bond market will end at some point. Yet in 2026, they aren’t all avoiding bonds entirely while waiting for the trouble to blow over. The Bloomberg Aggregate Bond Index — the bond market’s equivalent of the S&P 500 stock benchmark — was down 1.6% on a total-return basis this year through Wednesday’s close, according to Dow Jones Market Data.
The index return had flipped between negative and positive performance earlier in the year, but went consistently more negative in August as global crude-oil prices climbed toward $100 a barrel. The Bloomberg index includes Treasurys, corporate bonds, mortgage-backed securities and other government-backed debt. It doesn’t include ultrashort Treasury bills.
Infrastructure investing: A hedge against inflation and geopolitics?Play video: Infrastructure investing: A hedge against inflation and geopolitics? Higher oil prices cause inflation that damages the value of bonds, especially longer-dated ones, because a fixed income affords less when the cost of living rises. The Federal Reserve, under new Chairman Kevin Warsh, hiked interest rates this week for the first time in three years to fight inflation, with Warsh saying the economy can handle removing a “dose” of accommodation.
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The ongoing Iran war, which has dragged on for longer than many expected, has also has been a problem, he noted. A Fed rate hike, or a series of them, won’t get more oil flowing out of the Persian Gulf. Yet the start of a second hiking cycle since 2020 has calmed the selloff in long-dated Treasurys.
The all-important 10-year Treasury yield eclipsed 5% this week and hit its highest level in 19 years. That’s up from 4% at the start of the Iran war in late February. When asked about the Treasury rout Wednesday, Warsh pointed to global “hot spots” and several other factors putting pressure on the “the most important asset anywhere in the world.” “It’s the risk-free asset upon which every price of virtually every asset in the world is related to,” he said.
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