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Safest Bonds Underperform Junk Debt
Long-term Treasury bonds are considered safe but have declined significantly this year due to rising interest rates, with the iShares 20+ Year Treasury Bond ETF falling 6% and reaching its lowest point in 22 years. Factors such as high oil prices, government deficits, and increased borrowing for AI infrastructure have contributed to higher interest rates, which negatively impact long-duration bonds. In contrast, shorter-duration and riskier bonds have performed better, highlighting that "safety" in bonds can mean different things, depending on whether default risk or interest rate sensitivity is prioritized.
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