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Bond Returns and Congress

Bond Returns and Congress

August 11, 2020
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As election season heats up, we are often presented with questions regarding market returns based on the political party composition of the White House and Congress. In our Election Preview Weekly Market Commentary, we took a closer look at equity returns under various political scenarios. Here we provide the data for the other side of a standard asset allocation by investigating bond returns under various congressional makeups.

Using the 10-year Treasury bond as a proxy, we pulled the data going back to 1951, as the major bond indices do not have as long of a track record. While equity markets encounter greater volatility from corporate earnings, Treasury markets are largely driven by changes in interest rates. As shown in the LPL Chart of the Day, there does not appear to be as clear of a relationship between congressional makeup and Treasury returns as we saw for equity markets:

View enlarged chart.

While returns for the 10-year Treasury under a Republican president and a split Congress appear to be much better than other combinations, it is important to remember that Treasury yields reached their all-time peak at nearly 16% just before the beginning of Ronald Reagan’s first term. The yield on the 10-year eventually fell around 7% by the end of his second term, causing the returns under his administration to greatly skew the data.

With the 10-year Treasury yield currently trading just above 0.6%, it would seem unlikely that Treasury yields will ever return to the levels seen in the 1980s. However, despite low yields, 2020 has shown that the “safe haven” appeal of Treasuries can play an important role in client portfolios to limit volatility.

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