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Ever since Donald Trump surprised markets and won the Presidential election a month ago, equities have been flying and bonds have plunged. You probably already knew that, but you may not have appreciated the magnitude of the divergence. In the four weeks that have passed since Election Day, the S&P 500 is up 3.6% on a total return basis, while US Treasuries with a duration of more than 10 years are down 7.5%. That’s a spread of over 11 percentage points. The last time we saw a performance spread that wide was earlier this year in February/March. Even more, a few days ago the performance spread between the two asset classes widened out above 13 percentage points, which is a gap we haven’t seen in more than five years.
Given the recent underperformance of Treasuries, what started out as a great year for Treasury holders has turned into a bear of a year. The chart below shows the relative strength of long-term (10+ years) US Treasuries versus the S&P 500 over the last twelve months. When the line is rising, it indicates that Treasuries are outperforming, while a falling line indicates underperformance. When the relative strength of Treasuries peaked on 2/11, the group was up 9.8% YTD compared to a decline of over 10% for the S&P 500 for a gap of nearly 20 percentage points. Those days of outperformance are long gone, though, and since then long-term US Treasuries have declined 8.1% while the S&P 500 has surged 23.1%!