After a strong first quarter start (+2.17 percent), the Barclays Capital U.S. Aggregate Bond Index fell 1.02 percent in the second quarter and followed that with a minus 0.48 percent return in the third quarter to stand at 0.68 percent through three quarters, explains Jeff Tjornehoj, research manager, U.S. & Canada, Thomson Reuters Lipper, Denver. This was followed by a strong rebound in the fourth quarter (+4.58 percent), so the group ended 2008 up 5.24 percent.
This rebound was largely due to the meltdown in equities and fears over banks, which has made “nearly everything look too risky,” Tjornehoj says.
“Everything, that is, but good ol’ Uncle Sam: His debt seemed the most immune to crisis and throughout the quarter the bid was in. Yields were pushed so low that talk of a Treasury bubble gained more currency as the days passed, possibly catching investors at the worst time imaginable.”
Some Treasury bill yields did briefly turn negative in December, an event not seen since 1940, as fears mounted that the U.S. economy could be headed toward a deflationary period, the analyst points out.