How Much Can You Lose with Bonds?

A lot.

September 2022. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Bonds are typically considered safe investments
  • However, there were decades of negative real returns
  • Drawdowns reached 50% for U.S. Treasuries and Bonds


Inflation greater than 10% was unknown for the majority of people in developed markets before this year, but it is nothing particularly new for emerging market citizens. Russia experienced 15.5% in 2015, India 10.1% in 2013, Brazil 14.7% in 2003, and Turkey 19.6% in 2021. Holding cash becomes expensive as savings rates are often below inflation, so consumers spend their incomes, invest in hard assets like real estate, or try to move their money into different currencies.

U.S. investors need to go back to 1990 for inflation greater than 5%, or 1981 for inflation above 10%. Although the average inflation in the United States was a moderate 3.1% in the 93 years between 1928 and 2021, this includes times with high and low, even negative, inflation rates.

Most investors have portfolios predominantly comprised of bonds and stocks. Although 2022 has highlighted that even government bonds can decline in value, many investors still perceive bonds as safe investments (read No Longer Superheroes? Twilight of the Bonds).

In this research note, we explore how much money can be lost with bonds. 


We will use a data set from Professor Aswath Damodaran from New York University that includes the annual historical returns for stocks, bonds, and real estate in the U.S. from 1928 to 2021. 

First, we divide the entire period into quartiles based on inflation rates and show the average annual returns for the S&P 500, 3-month U.S. Treasury Bills, 10-Year U.S. Treasury Bonds, and U.S Corporate Bonds. We observe diverse returns for the different assets across the four inflation regimes, albeit all were positive. At first glance, this could reassure investors that even with inflation above 4% no negative returns should be incurred on bond investments.