US Treasuries May Be All You Need

February 6, 2001 ( - This may be news to plan sponsors, but if your money manager did not earn more than 13.65% in 2000, then just invest in US Treasuries and call it a day.

That is the recommendation from Ronald Ryan, president of Ryan Labs in New York. He noted “an amazing consistent lack of any excess return for any investment grade sector away from Treasuries,” including agencies, corporates and mortgages. 
Treasuries are regarded and the most liquid and highest credit instruments in the marketplace, Ryan said. As his index – the Ryan Labs Treasury Index- has shown, US Treasuries have outperformed agencies and corporates for the last seven years and mortgages for the last 10 years.
As a result, Ryan said “such consistent performance should be honored as the core asset for fixed income portfolios.”
“If you can’t outperform Treasuries, one would assume your value added is a negative.  Moreover, why diversify away from the most liquid, creditworthy securities if you are not rewarded consistently enough to do so?” Ryan said.
Ryan argues that contrary to popular belief, yields are not returns, but prices. When calculating the total return of any security, investors need to know beginning price, ending price and all cash flows in between.

“Just because Treasuries have lower prices doesn’t mean they have lower returns,’ according to Ryan. To the contrary, in the last seven years Treasuries (as measured by the Ryan Labs Treasury Index) have returned 6.60%, which is better than the Lehman Brothers Agency and Corporate Indexes which returned 6.63% and 6.53% respectively.  The Lehman Brothers Mortgage Index returned 7% for the same seven-year period.

Treasury Maturities “Sacred Ground”
Ryan makes the case that Treasuries are “sacred” and that the US Treasury is doing investors a great disservice by dismantling the Treasury maturity ladder. Eliminating maturities will have a “severe” ripple effect on pension funds since it will eliminate a key tool needed for matching assets and liabilities.
In order for pension funds to match these liabilities, they have traditionally relied on a wide assortment of Treasury maturities. But because the US Government thinks it has reduced the national debt, many bonds are no longer being issued.

Ryan said the US Treasury has already stopped issuing the 3-, 4-, 7-, 10- and 30-year US Treasury bonds and this violates the “sacred ground” of the yield curve, which will eliminate a basic asset-liability management tool for no reason.
“We need every one of these spots on the yield curve, so we can make comparisons and prices for every time period.  There are going to be many problems when these are eliminated,” Ryan warned.
One reason why Treasuries do not have a more prominent role in portfolios is that no one gets paid to sell them, other money managers said. One fixed income trader said he has seen a push towards adopting a swaps curve which is coming at the expense of  longer dated Treasuries that are being eliminated.
Ryan, who as the former head of fixed income research at Lehman Brothers helped create many bond indexes, started his own independent firm, Ryan Labs, in 1982. The Ryan Labs Treasury Index, created in 1983, is a market-weighted index of all Treasuries longer than one year to maturity.