It's Time to Buy Long-Term Bonds... Really

Stocks are soaring, and interest rates are low... so who wants to own bonds?

I get it. This isn't a sexy idea. But the time to buy long-term U.S. Treasury Bonds is now.

You see, bonds have taken a beating this year...

While the Nasdaq and S&P 500 are up 3% and 5%, respectively, a basket of long-term bonds is down 13%.

Importantly, the recent collapse led to a new 52-week low. Normally, we might expect this to mean more pain is ahead for bonds. But history shows that's not the case...

Bonds are set to outperform over the next year. And that means it's actually time to buy bonds today.

Let me explain...

Bonds are never exciting. And these days, with the Melt Up driving stocks to new highs, they're even less attractive. But that wasn't the case a year ago.

The iShares 20+ Year Treasury Bond Fund (TLT) holds a basket of long-term Treasury bonds. And it thrived during the early days of the pandemic.

TLT was up 14% while U.S. stocks were down 34% from February 19 to March 23, 2020. These safe bonds were what everyone wanted to own as COVID-19 took the global stage and spooked investors.

Now, things have changed. With vaccines rolling out and potential normalcy returning in 2021, TLT is crashing.

Investors are bidding up stocks and bailing on safety plays like bonds. Interest rates have been rising, and that has crushed bond prices.

This major shift has sent TLT to its lowest level in years. Check it out...

The recent fall has wiped out all of TLT's early 2020 gains. Again, the fund is down double digits this year. But history shows the downturn is almost over...

Since 1990, hitting a new 52-week low has signaled a turning point for bonds. And it could mean outperformance over the next year. Take a look...

TLT has returned 2.7% in a typical year since 2002. That's what you would expect from a boring bond fund. But by buying after TLT hits a 52-week low, you could have locked in much stronger returns...

Buying after similar setups has led to 2.5% gains in six months and a 5.1% gain over the next year. While those aren't huge numbers, it's much better than a buy-and-hold strategy.

Now, bonds are still in a downtrend. Prices have only begun to level off. But given how bad the fall has been, it's possible we've already seen the bottom. And shares of TLT are the easiest way to take advantage of it.

I know it's not exciting. But history shows the recent bloodbath in bonds could be over soon. And when the trend turns, bonds – and shares of TLT – are likely to outperform.

Good investing,

Chris Igou

Further Reading

Growth stocks have taken a beating in recent weeks. As a result, money managers have been shifting into value stocks as a form of protection. But history says that when this happens, growth stocks can soar much higher... Read more here: It's Time to Bet on Growth Stocks.

"Several U.S. sectors have taken a dive in recent weeks," Chris writes. But as this boring sector has started to bounce back, we're seeing an excellent setup for double-digit profits in the year ahead... Get the full story here: One Boring Sector With Double-Digit Upside Potential.

Market Notes
A NEW ALL-TIME HIGH IN THIS RAILROAD 'BELLWETHER'

Today’s company is hitting new highs as the economy recovers…

Longtime readers know that we use certain sectors as “bellwethers” for how our overall economy is doing. When things are moving around, it means there’s demand for products. Today’s company helps get industrial supplies from point A to point B…

Norfolk Southern (NSC) is a $75 billion freight giant. Its railroads transport supplies like chemicals, metals, and construction materials, among other goods. And though demand slowed during the pandemic, the company was able to reduce its expenses, too. That drove its operating income to $1 billion in the most recent quarter – up 2% year over year. What’s more, Norfolk Southern expects U.S. manufacturing to ramp up once workers can stop social distancing… good news for freight trains.

NSC shares have more than doubled over the past three years – and recently hit a new all-time high. And as the economy continues to get back on its feet, that trend should continue…