The Bloomberg US Aggregate Bond Index, which serves as a key benchmark for the American debt market, has exhibited challenging and almost unprecedented performance over the last five years. Historical data spanning nearly five decades (1977–2025) paint a clear picture: despite a significant positive recovery since the beginning of 2025 (7.5% return through November 25), the current decade (2020–2025) is the weakest decade since the 1970s. An analysis of the cumulative and annualized return trends reveals the major challenges that bond investors have faced in an era of high inflation and aggressive changes in interest rate policy.

Historical Returns: The Strongest and Weakest Decades

The decade-by-decade examination of the index provides a dramatic comparative perspective. The strongest decade in the index’s history was the 1980s, where bond returns benefited from a sharp decline in inflation and interest rates following the peaks of the late 1970s. The cumulative return in that decade reached 223%, with an impressive annualized return of 12.4%. In contrast, the current decade (2020–2025) recorded a cumulative return of only 6%, with an annualized return of 1.0%. This figure is significantly lower than the preceding decades (2010–2019 with a 3.7% annualized return, and 2000–2009 with 6.3%).

Paradigm Shift: The Era of Low Interest Rates is Over

The low returns in the last decade stemmed from a combination of near-zero interest rates that dominated the early years of the decade (until 2022), followed by aggressive rate hikes that led to significant losses in the existing bond market (as reflected in the negative 13.0% return in 2022). The positive returns of 2023 (5.5%), 2024 (1.3%), and early 2025 reflect the return of interest rates to higher levels, generating improved coupon and capital return potential. The days of safe, double-digit returns in the debt market, as seen in the 1980s, currently seem very distant, as investors learn to cope with a market where the debt market is no longer a safe haven against losses.

Forward Look: The New Debt Market

The historical data underscores that the US debt market is currently in a new paradigm. The high return achieved since the beginning of 2025 (7.5% through November 25) indicates the renewed attractiveness of bonds purchased at higher yields. However, continued volatility in the coming years will depend primarily on the Federal Reserve’s decisions regarding maintaining or reducing interest rates. Investors will need to adopt a more selective and dynamic approach to debt allocation, recognizing that the average annual return for the debt market may remain low relative to historical peaks, but the potential for capital gains from holding long-term bonds is once again present.