A comprehensive study spanning 300 years of conflict reveals that wartime periods are historically disastrous for government debt holders. The analysis indicates that the underperformance of bonds during these eras is primarily driven by surging inflation and government-imposed financial repression. To manage mounting war debts, governments often keep interest rates artificially low, which erodes the real value of fixed-income returns. In contrast, tangible assets such as equities and real estate have historically outperformed sovereign bonds during major geopolitical conflicts. This historical trend suggests a bearish outlook for long-term bond instruments like TLT and US10Y in environments of escalating global tensions. Consequently, investors may increasingly favor inflation-hedged assets to preserve purchasing power during periods of instability.
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