Last month served as a reminder of the peril inherent in declaring the worst over for bonds.

With the European and Chinese economies teetering, US inflation decelerating, signs of softness in the previously bulletproof US labor market becoming more apparent and the Fed likely done raising rates, it’s easy (and tempting) to make the bull case.

But with market participants still concerned about the read-through for long-end yields of a possible macro regime shift and fiscal largesse, it’s risky to suggest bonds have the all-clear.

2023 was supposed to be “the year of the bond.” In that context, August was a bitter disappointment. As things stood headed into September, 10-year US Treasurys were on track for a third straight annual loss.

As BofA’s Michael Hartnett (who comments regularly on this particular manifestation of history in the making) was keen to point out in his latest, a third straight annual loss would mark the first time in the history of the republic that 10-year US government bonds (or their equivalent), fell for three years in a row.

This is extremely problematic for multi-asset portfolios arranged around the notion that bonds are docile and that as such, the leverage can be pushed to juice returns. On a more pedestrian level, it’s a veritable gut punch for a generation of investors raised on the religion of 60/40, a key tenet of which says long-end US bonds are a hedge against stock losses.

But we aren’t in Kansas anymore, something Hartnett reiterated. The “big picture in the 2020s versus the 2010s is lower stock and bond returns, which we would expect to continue given political, geopolitical, social and economic trends,” he said, noting that US 60/40 portfolios rose an annualized 6.8% during the 2010s versus just 4.2% so far in the 2020s. Globally, those figures are 4.3% and 1.9%, respectively.

He juxtaposed the relatively lackluster 60/40 returns in the 2020s with 25/25/25/25 portfolios split evenly between stocks, bonds, cash and commodities. Such a portfolio with US stocks, bonds and cash is annualizing a 4% return. With global equities, bonds and cash, the figure is 3%. The implication: The era of dependable 60/40 outperformance may be over.