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The Next Mis-selling Scandal

Updated: Aug 3, 2022

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I received a lot of abuse over the last ten or so years from bond experts and others in relation to my numerous dire warnings about safe haven government bonds. Given low inflation and low/negative real yields that prevailed, it should have been obvious that these so-called safe havens were not safe. Any adviser who put their clients into them, whether Gilts, Treasuries, Bunds or JGBs, should be praying that their public liability insurance has been kept up to date.


Below is the chart of the iShares 20+ Year Treasury Bond ETF, adjusted for inflation. From its peak in mid-2020 it is down around 40%. Gilts have been equally awful - the Vanguard UK Long Duration Gilt Index Fund adjusted for inflation is also down 40% over the last two years. Long-dated Treasuries have lost 5% in real terms over the last 10 years. The same goes for long-dated Gilts. Short-dated safe haven bonds are also down in inflation-adjusted terms over the last ten years.



Moreover, these are losses that will never be recouped. They are permanent losses of capital that resulted from safe haven bonds having been in a gargantuan bubble that is now bursting. Furthermore, real yields are still very low and if inflation stays high, which, as I have argued in recent posts it probably will, inflation-adjusted losses will get even worse.


It was never clear exactly why inflation that had been low for decades would eventually rise but it was clear that it would. The same goes for real yields that in the UK had fallen to an absurdly low -3%.


I will no doubt get admonished by some for not having known what would eventually cause inflation to rise or when precisely it would happen. I don't mind. They clearly have no idea what investing is about.






The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.


© Chimp Investor Ltd

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