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Long Bonds - How The Consensus Was Wrong Last Year And Will Be Wrong In 2015

Can the chief economists of nearly all the major firms be wrong? Yes they can. In a poll by Bloomberg of 67 economists in 2014, all 67 said that rates would rise and advised investors to sell bonds (Eisen, 2014). They could not have been more wrong. The 30 year Treasury yield dropped 1.16% in 2014. This rate reduction might not seem significant until you observe that this represents a decline of almost 30% as the chart below illustrates:

(click to enlarge)

For investors, long duration Treasury ETFs provided an easy way to benefit from the decline in yields last year that trounced US equity indices including the S&P 500. The iShares 20+ Year Treasury Bond (TLT) returned over 27% in 2014 and the Vanguard Extended Duration (EDV) provided an even more dramatic result of 45% last year compared to the S&P 500's total return of 13.69%, as the chartRead More …