5 August 2011: S&P strips the US of its AAA rating
After the market closed, Standard and Poor's downgraded the United States' long-term credit rating from AAA to AA+, citing the political brinkmanship over the debt ceiling. Stocks tumbled when trading resumed. The ironic twist: investors fled into US Treasury bonds, the very securities that had just been downgraded, pushing their prices up. In a panic, the world still preferred the asset everyone was worried about.
The lesson: In a crisis, investors run to perceived safety, even when that safety was just downgraded.
What it meant for investors
$1,000 in US Treasury bonds at the start of 2012 → $1,130 today, vs $5,312 in the S&P 500.
We start the clock at the start of 2012, the first year in our price data after the event. That is 1.1 times the money, but $4,182 less than a plain index fund made over the same years.
What US Treasury bonds teaches: Bonds bought at very low yields carry real price risk, because the starting yield is the best guide to future bond returns.
| Bought in | Price then | Worth today | S&P 500 would be |
|---|---|---|---|
| 2012 | $460 | $1,130 | $5,312 |
| 2015 | $480 | $1,083 | $3,301 |
| 2018 | $490 | $1,061 | $2,519 |
green = beat the S&P 500 · red = lost money
What if you bought US Treasury bonds? Every starting year and the full story →
More US Treasury bonds history
- 4 February 1994: The Fed starts the great bond massacre
- 18 March 2009: The Fed fires its bazooka
- 15 June 2022: The Fed hikes 75 basis points
- 27 August 2020: The Fed changes how it targets inflation
- 6 October 1979: Volcker's Saturday Night Special
- 3 November 2010: The Fed launches QE2
Could you have called it at the time? The wheel picks the year, you pick the position, ten seconds a pick.
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