IF there was one common theme that ran through markets in 2014, it was the surge in volatility. We started 2014 expecting a synchronised global recovery. What we ended up with, however, was very different. We had soaring Treasury bond prices, Russia’s intervention in the Ukraine crisis, advances made by Islamic militants in Iraq and Syria, worries about the spread of Ebola, mounting concerns on a currency crisis in Russia, turmoil in oil markets. How eventful.
In the United States, investors throughout the world fled turbulent stock markets for the perceived safety of US bonds. If someone told me that the US 10-year Treasury bonds that paid you 2% a year to lend them money for the long term could rise in value any further, I would have scoffed. Why anyone would lock their money up for 10 years for less than 2% which barely matches inflation is beyond me. This was an asset class that was deeply unloved by most investors. So, imagine the disbelief that the US 10-year Treasury bonds were the best performing assets in 2014 on a risk-adjusted basis, gaining more than 8% in 2014.
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