Bonds Notch a Rare Win Over Stocks

The long-running market truism that stocks always outperform bonds has been upended for the first time since the Civil War era, at least by one measure. For the 30 years ended Sept. 30, Treasuries maturing in 20 years or more averaged annual gains of 11.5 percent, according to the Ibbotson Long-Term Government Bond Index, beating the 10.8 percent annualized in Standard & Poor’s 500-stock index. That means $1,000 invested in long-term Treasuries in 1981 would be worth $26,197 today, while the same amount put into stocks would total $21,745. “The generation-long outperformance of bonds over stocks has been the biggest investment theme that everyone has just gotten plain wrong,” says Jim Bianco, president of Bianco Research in Chicago.

This year, especially, investors have sought the relative safety of Treasuries and other bonds as U.S. economic growth remains weak and Europe’s fiscal crisis threatens to push the global economy back into recession. Mutual funds that focus on bonds have attracted $789.4 billion since 2008, compared with a $341 billion drop in equity funds, according to data compiled by Bloomberg and the Washington-based Investment Company Institute.