Longest Bond Bear Market in History: Diversification Lessons
In the summer of 1960, the Everly Brothers released one of their signature hits, “When Will I Be Loved?” Written by Phil Everly (and made famous a second time by Linda Ronstadt in 1974), the song tells the story of someone wondering why they continue to be overlooked despite remaining loyal and dependable.
More than 65 years later, investors might reasonably ask the same question about one of the largest asset classes in the world.
When will bonds be loved again?
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
Why have bonds declined?
For most of my nearly 40-year career as a financial professional, bonds were among the most respected investments available. They generated income, reduced portfolio volatility and often rose when stocks struggled, becoming the foundation of the traditional 60/40 portfolio.
That belief was reinforced after the dot-com bust, 9/11, the Global Financial Crisis and the COVID-19 shutdowns. In each episode, Federal Reserve easing generally supported bond prices, reinforcing the idea that at least one part of a diversified portfolio could cushion periods of market stress.
Then came the post-COVID inflation hangover.
Massive fiscal and monetary stimulus, combined with supply-chain disruptions and labor shortages, produced the highest inflation in four decades. The Fed responded with one of the most aggressive interest-rate-hiking campaigns in modern history, raising short-term rates from essentially zero in early 2022 to more than 5% by mid-2023.
The consequences for the bond market were unlike anything most investors had experienced.
Because bond prices move inversely with interest rates, existing bonds declined as yields rose, with longer maturities suffering the largest losses. Investors who viewed high-quality bonds as stable suddenly experienced drawdowns few thought possible.
As of August 1, 2026, the Bloomberg U.S. Aggregate Bond Index had experienced a drawdown lasting 72 months, making it the longest downturn in the index’s history. The cumulative decline was nearly twice as large as the second-worst bond downturn on record and lasted almost five times longer than any previous decline.
What comes next?
History reminds us that every asset class eventually experiences a period when investors begin questioning its usefulness. Stocks faced that skepticism after the financial crisis. Gold experienced it after 1980. Energy investments endured it during the pandemic.
Not surprisingly, thoughtful investors have reached very different conclusions about what should come next.
Bob Pozen, an accomplished investor, academic, and former financial executive, recently argued in a Wall Street Journal opinion piece (paywall) that many affluent investors may hold too much in bonds and too little in equities.
For investors whose living expenses are adequately covered by other income sources, he suggested that a 90% stock, 10% money-market allocation could be more appropriate than automatically assigning 40% of a portfolio to bonds.
His argument reflects a broader reconsideration of the traditional 60/40 portfolio. Some investors favor market-neutral strategies, merger arbitrage or other investments that rely less on interest-rate direction. Others believe infrastructure and gold may deserve a larger role.
It is a thoughtful argument. But it is not the only thoughtful argument.
Investment writer Jared Dillian has reached almost the opposite conclusion. His view reflects one of investing’s oldest principles: When an asset class becomes universally disliked, it may deserve a closer look rather than immediate dismissal.
Sentiment toward bonds is deeply negative. Many portfolios now hold less fixed income, and bonds receive little attention except when interest rates rise. That is exactly the kind of environment contrarian investors notice.
The fact that two respected thinkers can examine the same evidence and reach opposite conclusions reminds us that investing is less about certainty than about weighing probabilities with humility.
We can’t predict, but we can prepare
Perhaps the larger lesson has less to do with bonds than with diversification itself.
For decades, many investors thought of diversification as simply owning stocks and bonds. That framework served investors exceptionally well, but markets continually evolve. Alternative and private investment strategies have become more widely available, giving investors more portfolio construction tools than they had a generation ago.
That does not make the 60/40 portfolio obsolete. It simply suggests diversification deserves thoughtful examination rather than automatic acceptance.
Many investors had experienced only one major bond environment before COVID: A nearly 40-year period of generally declining interest rates beginning in the early 1980s. Falling rates created one of the greatest bond bull markets in history, allowing bonds to deliver both attractive income and significant capital appreciation.
That experience was extraordinary. It was also historically unusual.
Interest rates tend to move in long cycles, sometimes lasting decades. Investors may forget that the period from 1982 through 2020 was every bit as unusual as the last several years, only in the opposite direction. What seemed normal was actually one of the most favorable environments bond investors had ever experienced.
Today’s environment may not represent the death of bonds. It may simply mark a return to a more typical interest-rate landscape.
Inflation could remain higher than investors became accustomed to, making bonds less attractive than they once were. Or today’s higher yields could produce stronger long-term returns than many investors expect.
Portfolio construction may evolve toward a broader mix of stocks, bonds, cash and alternative strategies. Or, after one of the longest periods of disappointment in history, bonds may quietly regain investors’ affection.
Howard Marks often reminds investors that we cannot predict, but we can prepare. That may be the most important takeaway.
Rather than reacting to the past few years, investors should ask whether their portfolios are diversified enough to succeed across a wide range of economic environments. Eventually, every asset class has its turn in the spotlight.
Eventually, every asset class falls out of favor. The challenge is recognizing that today’s least-loved investments can become tomorrow’s favorites.
So perhaps the better question is not simply, “When will bonds be loved?” It is whether investors will remain disciplined enough to recognize the opportunities when they appear.
