The view from the other side of the world

An investor in 10-year US treasuries has been handsomely rewarded over the last 30 years. Yields have contracted from a high of 16% in the early 1980's to well below 2% more recently.

As yields have fallen, investors have significantly benefited from capital gains, giving rise to the slightly perverse current situation where investors are in bonds for capital gains and in equities for income. Such an investor might be a North American baby boomer (there are after all over 70million of them) nearing or in retirement with a well-earned nest egg to protect and use for an income.

When these boomers were in their middle age they would have seen a $500,000 investment in US 10-year treasuries providing a comfortable annual income of $80,000. Not too bad, and an awful lot more than the $10,000 it would provide today. Of course, a prudent investor might also want protection from future inflation, something that bonds don't do, and something we will come back to.