00:00Why is this? I would have thought that treasuries should be a safe haven. They're, you know, U.S. dollar
00:06priced instruments that have the full faith and credit of the United States government behind them.
00:13Hi, Matt. Yeah, I mean, I think that speaks to the conventional wisdom that, you know, treasury prices and stocks
00:20are inversely related.
00:21So when, you know, when things get hot and stocks are under pressure, risk assets more generally, you should go
00:26to treasuries because they'll go in the other direction.
00:28And a lot of people are worried about whether that's true now because we have this Iran war and that
00:33could put on inflationary pressures that will push up rates.
00:38And also, you know, there's the evergreen debt and deficit problems and people are worried the bond vigilantes are going
00:46to step in, do the same thing to rates, which would be problematic, obviously, if you're looking for a safe
00:51haven.
00:51But, you know, all of that got me thinking, to what extent is it actually true that historically treasuries have
00:58moved inversely to stocks when you most needed it?
01:01And I went back and looked at all the bear markets since the 1920s.
01:05We have good data going back that far.
01:07And I just I was surprised to see that it actually is not true.
01:10More than half the time in bear markets since the 1920s, either treasuries have declined alongside stocks or they just
01:17haven't put up any meaningful gains to give you a counterweight.
01:21So, you know, I think to the extent that that you're looking for treasuries to bail you out, the truth
01:26is it was never reliable and it probably won't be reliable going forward.
01:30So, Nir, why have treasuries in your portfolio at all then?
01:34What is the use case?
01:37Yeah, I mean, I think I think that's where you have to be strategic about how you think about bonds.
01:41So one of the things we also looked at is we've looked at the long term returns from both treasuries
01:46and credit over time.
01:48And just to see ultimately, like, do you get more, you know, in general, the rule in markets that we
01:54all rely on, which is generally a good rule, is that the more risk you take, the more return you
01:58should expect.
01:59However, in the bond market, it doesn't necessarily work that way.
02:02What we noticed is that in the with treasuries, for example, if you were in the short to intermediate term,
02:08you maximized your risk adjusted returns.
02:11As you went out further, you know, 10, 15, 20 plus, you got incrementally higher gains, but you also took
02:18a lot more risk.
02:18You got a lot more volatility.
02:20And so the risk adjusted returns were not as good.
02:22We noticed the same thing in the credit markets as well, except that on the credit side, as you extend
02:27out in the lower quality credit, the returns actually went down.
02:31So the way to think about this is, you know, to the extent that you want bonds in your portfolio
02:34and almost everyone does because it stabilizes the portfolio, gives you a source of liquidity.
02:38It's totally fine, but I think you can manage a lot of that risk and particularly the risk that everyone
02:44is worried about in this moment by just keeping your term short term intermediate and keeping your quality higher, just
02:51below investment grade.
Comments