U.S. bonds are on track to log ten straight six-month periods of underperformance relative to stocks, a record-breaking stretch of underperformance since 2020 that’s rippling through markets and shaking up traditional investor portfolios.
The streak spans five years and reflects a regime shift in global markets—one driven by rising interest rates, an overstretched fiscal backdrop, and a tech-driven equity boom.
Yet with geopolitical tensions escalating in Iran, some may wonder whether the prolonged cycle of bond underperformance compared to stocks might finally turn.
See Also: War, Oil, And S&P 500: Here’s How The Stock Market Behaves In Energy Crises
Bond Market Underperformance
A way to assess the relative performance of the bond market compared to the stock market is by tracking the ratio between the iShares 20+ Year Treasury Bond ETF TLT and the Vanguard S&P 500 ETF VOO; below is a table showing this dynamic over the past 10 consecutive half-year periods.
| Period | TLT/VOO Ratio | TLT Return | S&P 500 Return |
|---|---|---|---|
| 2020 H2 | -20.65% | -3.80% | +21.30% |
| 2021 H1 | -20.07% | -8.48% | +14.50% |
| 2021 H2 | -7.46% | +2.70% | +10.94% |
| 2022 H1 | -2.44% | -22.48% | -20.54% |
| 2022 H2 | -14.43% | -13.33% | +1.29% |
| 2023 H1 | -10.81% | +3.39% | +15.92% |
| 2023 H2 | -10.44% | -3.94% | +7.25% |
| 2024 H1 | -18.93% | -7.18% | +14.50% |
| 2024 H2 | -11.68% | -4.85% | +7.73% |
| 2025 H1 (thru June 23) | -2.15% | -0.10% | +2.05% |
Chart: TLT vs. VOO – A 70% Underperformance Over Five Years
Why Have Bonds Struggled?
It all started with the 2020 pandemic recovery, when a “risk-on” mood emerged.
As stimulus measures boosted economic growth, investors fled safe-haven Treasuries and flocked to risk-on assets like equities.
The real damage accelerated in 2022, when the Federal Reserve launched its most aggressive rate-hiking cycle in decades. Bond prices collapsed as yields surged, marking the end of a four-decade bull run fueled by low inflation and near-zero interest rates since the 2008 financial crisis.
Even in the first half of 2022, as the S&P 500 plunged 20.5%, long-duration Treasuries fell even harder—down 22.5%—highlighting how vulnerable bonds had become in a rising-rate environment.
The contrast grew starker in 2023 and 2024, when stocks entered a blistering bull market—posting back-to-back annual gains of 24% and 23%, the strongest two-year stretch since 1998. Bonds, meanwhile, remained under pressure as yields stayed elevated.
Behind the scenes, U.S. fiscal conditions worsened. Since the pandemic, the federal deficit has hovered near 6%-7% of GDP, far above historical norms. In 2025, credit rating agency Moody’s stripped the U.S. of its last AAA rating, citing runaway spending and debt accumulation. Yields on 30-year Treasury bonds escalated at or near 5%.
Adding fuel to the fire, President Donald Trump’s sweeping fiscal package has pushed long-term projections deeper into the red. According to the Congressional Budget Office, the bill is expected to add $2.6 trillion to the deficit over the next decade.
Together, these forces have created a toxic mix for bonds: rising rates, sticky inflation, surging deficits and a loss of investor confidence in U.S. fiscal sustainability.
Will War Shift The Bond-Stock Balance?
With geopolitical risk surging after the U.S. struck Iran’s nuclear facility on June 21, investors are asking a key question: Could a major war or energy crisis finally reverse bonds’ historic underperformance versus equities?
According to Mark Cabana, rates strategist at Bank of America, the relationship between conflict and Treasury yields isn’t straightforward.
“UST yields often don’t decline with higher geopolitical risks, especially if oil prices are rising,” he said in a note shared Monday.
The critical factor, Cabana added, is whether the event materially damages the U.S. economy.
“Our analysis of prior geopolitical events suggests an inconsistent response of USTs; we conclude that USTs often do not rally amidst geopolitical tensions and the directional move correlates with oil prices.”
Bank of America’s historical study, which includes major geopolitical flashpoints from the 1990 Iraqi invasion of Kuwait onward, found that Treasury yields actually rose about half the time in the month following such events.
Often, these periods were accompanied by oil price spikes, which fueled inflation concerns and pushed yields higher—not lower.
Put simply, the bond market doesn’t behave like a risk-off hedge when oil is surging.
That’s why even a significant military escalation in the Middle East may not be enough to snap the bond market’s underperformance streak versus equities.
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