Unless they were fearless enough to invest in Bulgarian bonds that appeared to be on the brink of default, the first three months of the year were disappointing, with robust US growth, doubts about the outlook for European monetary union and already low yields in many places depressing returns.
But few investors expect the outlook to improve in the months ahead. "I don't think it's a great story for bonds anywhere," said Ray Goodner, bond manager at American Express Financial Advisers.
Switzerland and Japan - the two countries with the lowest interest rates and bond yields - were among the best performers, as sluggish growth raised expectations that rates in the two nations will stay low.
In local currency terms, Swiss bonds returned 2 per cent in the first quarter - including price gains and interest - while Japanese bonds returned 1.4 per cent.
Compare that with the equity market, where major indexes in many European countries, including Germany, Switzerland, Sweden, Belgium and France, rose more than 10 per cent during the quarter.
In the US, bond prices fell - and yields climbed - amid signs of strong growth that finally, last week, forced the Federal Reserve to raise interest rates. US bonds posted losses of about 0.1 per cent in the quarter, meaning investors who put money into Treasuries at the start of the year only broke even.
Investors, now fretting there may be another rate increase this year, don't expect much in the way of gains in Treasuries - although some say the Fed's moves will keep inflation at bay and could ultimately help bonds.
In continental Europe, bonds rose and fell during the quarter, responding to shifting perceptions about the prospects for a timely start to monetary union.
In countries such as Spain and Italy, which are expected to have a tough time meeting the Maastricht Treaty targets, bonds fared worse. Spanish bonds returned 0.3 per cent, while Italian bonds lost 0.8 per cent. Last year, Italian bonds returned about 21 per cent and Spanish bonds about 22 per cent, placing them among the world's best performers.
In the UK, where bonds returned just 1 per cent in the first quarter, still one of the better performances in Europe, the run-up to the 1 May general election will set the tone for government bonds in the coming months. With Labour leading the Conservatives by as much as 25 percentage points in recent opinion polls, a change of government looks likely.
Bonds probably won't suffer much as a result, traders said. There's "not much difference between the two parties on economic policy", said Colin Black, a fund manager at Scottish Equitable.
Although Japanese government securities also performed well in the past three months as a rally drove yields to record lows, investors say the best is likely over.
"A 10-year bond yielding less than 2.5 per cent is certainly not interesting, so I'm not thinking of aggressively boosting my yen bond allocation," said Kikuo Shirose, a portfolio manager at Tokyo-Mitsubishi Asset Management.
Canadian bonds, which provided investors with break-even returns in the first quarter, may fare poorly if higher US rates lure investors away.
Higher rates are "going to have a severe impact on Canada bonds and the dollar" as investors abandon Canadian securities for higher-yielding US issues, said Michael Manford, chief economist with Scotia Capital Markets in Toronto.
Emerging market bonds rose 2.6 per cent in the quarter, according to JP Morgan's index, as worries about higher US interest rates put the brakes on the last quarter's brisk 14 per cent gains.
Bulgarian bonds surged 17 per cent as the country reached a loan pact with the International Monetary Fund. Russian and Ecuadorian debt fell following the ousting of Ecuador's president and Russia's arguments with the IMF over its loan programme. Copyright: IOS & Bloomberg