Entering text into the input field will update the search result below

BND: The Great Bond Crash May Only Be Beginning

Harrison Schwartz profile picture
Harrison Schwartz


  • As expected, we have seen an acceleration in yields due to rising inflationary pressures which have pushed bonds lower.
  • Evidence suggests that the Treasury bond market (and deficit) is almost entirely supported by the Federal Reserve and  U.S commercial banks - the latter's support is waning though.
  • Low bond yields beget high downside risk due to convexity and duration. BND's duration remains high despite the recent decline.
  • Inflation may continue to rise much higher due to the lag between Fed policy and inflation as well as the growing wage-price spiral.
  • The Treasury bond market may see short-term respite if equities decline as I expect, but this would be unlikely to last long.

United States of America government savings bond series EE
Photo by JJ Gouin/iStock via Getty Images

One of the key trends in 2021 has been the ongoing decline in the bond market. Long-term rates have been on an aggressive rise as both the yield curve and inflation outlook rise

This article was written by

Harrison Schwartz profile picture
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (25)

Lake OZ boater profile picture
Timely article by investing expert Larry Swedroe . Swedroe cites Morningstar's new research showing older investors handled last year's Covid-19 crash the worst.

From the article: "The most important lesson from this latest research for investors is to establish an asset allocation plan that both anticipates the occurrence of severe bear markets and does not have a higher equity allocation than you have the ability, willingness or need to make."

SonnyBeech profile picture
As a income investor a spike in bond rates cant come soon enough
labard profile picture
I bonds are tax exempt in a taxable account? I have cash in a taxable account that is making zilch. What are I bonds and how do I buy them (I apologize for my ignorance)?
AlphaCalifornia profile picture
Mr. Enna of Tipswatch, makes good points about 'staying the course' with bond funds/ETFs.

Tipswatch.com is not to be missed.

I invest only so much in a bond fund as I'm unlikely to need before the duration of the fund has passed. Dollar cost averaging creates a rolling tranche of funds with a measure of protection against market swoons.

If the net asset value takes a nauseating dive, reinvested distributions buy more shares. It's striking, how things come full circle in the duration time frame.

I follow Jack Bogle's blessed dictum: keeping my age as a percentage in bonds, the rest in equities. That's the closest I come to market timing, having taken a bath several times. I was too clever by half. Never again.

Vanguard Short-Term Investment-Grade (VFSUX) is useful as a money market fund owing to its remarkably stable net asset value. Its duration is 2.6 years, with a expense ratio of $1.00/$1000/year.

US national debt owed to the public is 78% of gross domestic product (source: The Balance). It's not excessive, compared to other industrialized, economically developed countries. Japan's is 230% (source: Fitch Ratings). Germany's is 68% (source: OECD)

Euro area debt is 97% of GDP (source: Eurostat).

Intragovernmental debt amounts to 22% of GDP (source: Gov't Accountability Office). One agency borrows from another. The Treasury borrows from Social Security, Medicare and government pensions. The monetary effect of IG borrowing is small, in my opinion.

The national debt is mainly a political matter, not an economic one.

Please do not take these comments to be investment advice. May you find your own path to financial freedom.
Lake OZ boater profile picture
@AlphaCalifornia Excellent comments, and well done.

Adding to the discussion, you wrote: " I follow Jack Bogle's blessed dictum: keeping my age as a percentage in bonds, the rest in equities."

I am a huge fan of Jack Bogle, and he was truly a friend of the small investor. While rules of thumbs are often good starting points, it's important to consider them being mindful of our own personal need, willingness and ability to take risk.

Financial writer and expert William Bernstein believes that when it comes to allocation to equities, we should all ask ourselves a very important question, i.e. "How much can I afford to lose?" Obviously the answer to that question will be different for all of us depending on where we are in our investing journey.

To help answer Bernstein's question, another financial writer and expert, Larry Swedroe offers a table, based on past bear markets, to help guide us a bit more with that decision.

Max Equity Exposure-- Maximum Loss

For retirees, don't forget about "drawdowns" and "recovery times", i.e. how much you can "temporarily lose" and the amount of time that might transpire before you "get back to even." Retirees will likely be making withdrawals from their investment accounts during the "recovery" period.

A few examples of "recovery times" can be found at the PortfolioCharts.com website. Their historical data suggests...

60% stocks / 40% bonds portfolio :
-Deepest decline -34%
-Longest recovery: 12.5 years


30% stocks / 70% bonds portfolio:
-Deepest decline -21%
-Longest 11 years


GLTA in 2021 !

EU, Germany and Japan are all generally "creditor nations" while the USA is a "debtor nation", plus the USA issues the global currency.

Those are 2 very significant factors many overlook and why, I believe, it isn't an "apples-to-apples" comparison.
AlphaCalifornia profile picture
@LakeOZ boater

I concur with you: principles set forth by Jack Bogle are starting points.

Here's quote from Bogleheads.org, an invaluable resource:

"'Age in bonds' and its variants, (age - 10) or (age - 20), are only crude starting points to be adjusted for the investor's circumstances; a key circumstance being the presence or absence of a pension, which would change ones willingness or need to take risk. Some Bogleheads do not add pensions and Social Security to their asset allocation of bond holdings."

Not only should risk tolerance be factored into allocation, but also pensions, annuities and/or Social Security, presumably as bond analogs.

I've recently had age minus 10-15 percentage points for bonds. Don't fight the tape or the Fed.

These comments are expressions of personal opinion, not recommendations. We must all find our own path to financial nirvana.
Lake OZ boater profile picture
It seems the "growth scare" has hit a speed bump otherwise known as "reality." Ironic this report came out on the heels of Jamie Dimon's recent prognostication that happy days are here again.

- As of 4/8/21, the number of Americans filing for first time jobless claims has spiked back to 744K.

-Over 18 million Americans remain on some form of government jobless benefit.

For folks interested in "timing" the bond market, keep in mind inflation is a lagging economic indicator. CPI is best correlated to the economy (coincident indicators) with up to a 21-month lag. In 2008 for example, inflation peaked one year after interest rates peaked.

Interest rates are much more interested in the outlook for future inflation than what it has measured in the last 12 months. Since the recent peak of the yield on the 30 year treasury at 2.45%, it is down (-13) bps to 2.32%.


The Cleveland Fed's 10-year average expected inflation rate is currently: 1.48%
(Estimates going back to 1982).

Lake OZ boater profile picture
1) The portfolio management advice to avoid bonds is terrible

2) Schwartz's thesis totally ignores debt economics and low money velocity.

To avoid investing in treasuries at this time is to ignore "tail risk" and investor's human nature to "panic" .There is only one right way to build a portfolio — we should consider how the addition of an asset class impacts the risk and return of the entire portfolio. Instead, he choses to look an asset class in isolation.

Myopic loss aversion occurs when investors take a view of their investments that is strongly focused on the short term, leading them to react too negatively to recent losses, which may be at the expense of long-term benefits (Thaler et al., 1997)

The 30 year recently peaked at 2.45%.

-It closed 4-6-21 at 2.32% (down -13 bps from peak)

TLT closed 4-6-21 at $138. I'm looking for a rebound to $ 148-150.

- It seems the Europeans and Japanese now like US "high" yields.

-F-X hedged US treasuries reached their cheapest (near peak) since 2014, and since then, they have been bought since the beginning of Q-2. (Source: Bloomberg)

We are experiencing a "cyclical" upturn in inflationary expectations due to the economies of the world re-opening. This is not a secular change. The global economy was already experiencing problems in 2019 before the pandemic hit.

The US is caught in a "debt trap", a term coined by the Bank for International Settlements and describes a condition in which too much debt weakens growth. This then elicits a policy response that creates more debt. The higher debt then results in even more disappointing business conditions. As long as Washington's fiscal policy pushes the US' debt level ever-higher, the disinflationary trends of the recent past will return.
amREADY profile picture
@LakeOZ boater Rarely do I read a comment and say, yes, yes, yes, oh, good one, yes, and well put.

Lake OZ boater profile picture
@amREADY You are too kind, but hope you found it a sanity check anyway . My crystal ball is always foggy, but it just doesn't seem prudent to throw caution to the wind in this era of out of control central banks.
@LakeOZ boater Can I hire you?? You are in my opinion correct. I almost bought a Condo there. Lovely lake
Tipswatch profile picture
I share a lot of your views, and have for some time. But ... BND remains my core bond holding. In addition, I have moved a good portion of my fixed income allocation out of BND to shorter-term bonds and inflation protection. I'm fortunate to already have a good allocation in inflation-protected I Bonds, which takes time to develop. Investors need to realize that their fixed-income assets have "inflated" in value because of the Federal Reserve's actions. I think the 10-year Treasury should be yielding about 3% today (at least) and that might mean a 7-8% cut in the value of BND, but then you'd also be earning a higher yield.

Some people say: Get out of bonds! I don't. You note that a bond portfolio could lose 30% over the course of several years (but then would be earning more interest and you'd be reinvesting at lower levels). The stock market could drop 30% in a month, and remains much more risky. BND is a good fund to counteract that risk.
@Tipswatch I hold my I-Bonds in, of course, taxable account (only option) at the Treasury, I have had that account since 2000, they used to send me this silly plastic card with a Byzantine numerical code to log in. The site is much better, fast forward 20 years. My question to you, I honestly do not know, you say BND is worth holding, May I have your opinion, to hold it in a IRA, or a taxable account? Thank you
Lake OZ boater profile picture


In general, it's probably best to hold stocks in taxable accounts and bonds in tax-advantaged accounts. The rationale ....

1) Bonds are taxed at higher rates than stocks, so sheltering the assets taxed at the higher rate is advantageous.

2) A large portion of the return on equities comes from capital gains. Stock returns are already tax-deferred, even when stocks are held in a taxable account. You don’t pay the tax until you sell the stock.
Tipswatch profile picture
@LakeOZ boater @@@sethcolorado .... I agree with LakeOZ, it's preferable to hold bond funds in tax-deferred accounts, and traditional IRAs or rollover IRAs or 401ks are better than Roth accounts, which should be the last money you withdraw, and therefore can take on more risk. I Bonds have the advantage of being tax-deferred, but in a taxable account.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

About BND

SymbolLast Price% Chg
Expense Ratio
Div Frequency
Div Rate (TTM)
Yield (TTM)
Assets (AUM)
Compare to Peers

More on BND

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.