How did bonds perform during the market volatility of Q1 2020?

It’s important when going through any period of volatility in markets for investors to consider their portfolio holistically. Are the assets in your portfolio doing what you expect them to do? Bonds aim to provide defence, income and diversification – over the long term, that’s what they have historically done.

And looking at performance for the first quarter of 2020, bonds have delivered returns in line with what clients would expect: over the quarter, U.S. bonds returned 3.15%, and global bonds (hedged into U.S. dollars) were up 1.45%.1

1. U.S. Bonds: Bloomberg Barclays U.S. Aggregate Index, Global Bonds USD hedged: Bloomberg Barclays Global Aggregate Index (hedged to USD)

So what happened in March?

As the COVID-19 crisis unfolded, March saw extreme and rapid dislocation across markets and featured historically large declines (or drawdowns) for all asset classes. As investors might expect, riskier assets such as stocks saw significant drawdowns, but even high quality assets like government bonds suffered.

Comparing this year’s U.S. stock market declines with the GFC in 2008

One main factor that caused this dynamic was the sheer speed of the sell-off. Compare the speed of the current market sell-off with the GFC, which played out over 12-18 months. This sell-off occurred in 6% of the time it took the 2008 sell-off to unfold. Given the speed of this sell-off, as many global investors panicked and rushed to cash, or looked to liquidate assets to meet their cash flow needs, anything liquid was sold as these assets were the quickest and easiest to sell.

As a result, bonds largely underperformed over the month of March as this liquidity rush drove market pricing. However, as stated above, over a longer time horizon, even over the course of the quarter, bonds still provided a positive return in a challenging return environment.

What does this mean for the future?

Investors focused on the longer term health of their portfolio should not worry overly about short-term moves.

It is easy when markets are turbulent to focus on short-term performance. However, it’s important to remember that investing requires a longer term focus. Investors that remain invested rather than selling down during periods of market volatility should be well positioned to benefit from any stabilization and recovery in the market over the longer term. Bonds, as with all assets, can suffer short-term losses, but over a longer time horizon, they should still deliver the defence, income and diversification that investors expect.

It is ‘time in the market, not timing the market’ that generates solid long-term returns. 


All investments contain risk and may lose value. Investors should consult their investment professional prior to making an investment decision. Past performance is not a guarantee or a reliable indicator of future results.

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