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Reuters: Inflation challenges US Treasuries' traditional role in portfolios
Rising long-term yields are making Treasuries less reliable as a stock hedge, with the 60-day S&P 500 correlation at a two-decade high.
- The 30-year Treasury yield rose further above 5% this month, undermining the traditional 60/40 portfolio model as bonds lose their ability to stabilize investor holdings amid economic and fiscal pressures.
- Bond market stress traces back to 2021 inflation, recently exacerbated by the Iran conflict and increased deficit spending; the term premium on 10-year Treasury debt rose to around 0.86% as investors demand higher compensation.
- The 60-day correlation between stocks and Treasury returns hit a two-decade high, meaning bonds amplify market swings rather than hedge them. "The value proposition of bonds in a portfolio is really quite challenged," said Jonathan Cohn, head of rates desk strategy at Nomura.
- George Catrambone, head of fixed income for the Americas at DWS Group, noted there are "certainly more questions about the safety of the dollar and deficits than there were five years ago," complicating portfolio managers' decisions.
- Despite these challenges, few investors are ready to abandon Treasuries as a core global asset. "Bonds aren't going to necessarily hedge your portfolio when inflation is high and volatile," added John Luke Tyner, head of fixed income at Aptus Capital Advisors.
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Easing global tensions largely priced in by investors
Global markets have spent the past month navigating a challenging combination of rising bond yields, inflation concerns and geopolitical uncertainty. Persistent worries that inflation could reaccelerate led investors to sell US Treasuries, pushing the 30-year Treasury yield to its highest level in nearly 19 years and the 10-year yield to its highest since January 2025.
·Bangkok, Thailand
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Total News Sources6
Leaning Left0Leaning Right1Center4Last UpdatedBias Distribution80% Center
Bias Distribution
- 80% of the sources are Center
80% Center
C 80%
R 20%
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