Contrary to all expectations, bonds have rallied strongly since the start of the year. Long maturities have outperformed shorter maturities, and government bonds have outperformed corporate. If you had been fortunate enough to be heavily invested in long term government debt on January 1, you would, as of yesterday's market close, have more than a full year of yield just in asset price increases. Vanguard's two best performing bond funds are VUSTX (long-term treasury), up 4.90% YTD compared with a yield of 3.48%, and VLGSX (long-term government bond index), up 4.79% compared with a yield of 3.58%. It looks as if the rally will continue today, with the 10 year yield down an additional five basis points in early trading.
Note that this rally is not necessarily a reflection of the wisdom of piling a lot of money into long term debt. VUSTX and VLGSX are both still down since the beginning of 2013, even including the recent rally. However, it does show that bond prices are awfully unpredictable and that even the most despised asset classes can offer opportunities to investors who aren't scared away by all the negative press.
Note that this rally is not necessarily a reflection of the wisdom of piling a lot of money into long term debt. VUSTX and VLGSX are both still down since the beginning of 2013, even including the recent rally. However, it does show that bond prices are awfully unpredictable and that even the most despised asset classes can offer opportunities to investors who aren't scared away by all the negative press.