The Problem with Bonds

The report argues that structural shifts including tight labor markets, volatile inflation, and geopolitical risks have undermined the traditional role of bonds as a portfolio diversifier. It recommends shifting toward alternative assets like commodities and macro hedge funds to hedge equity risk.

Key Takeaways

• 1.Bond yields are likely to experience higher highs and lower lows due to tight labor markets and frequent supply shocks.
• 2.The rise of far-right political sentiment and resulting curbs on immigration are creating upward pressure on bond yields via labor market tightness.
• 3.Bonds are losing their efficacy as a portfolio diversifier because central banks are now focused on keeping rates near 'neutral' rather than aggressive cutting.

Table of Contents

• The long bond winter
• Tighter labour markets and stronger private-sector balance sheets
• Bonds used to rally a lot when equities faltered – not anymore
• Still deep in the red
• A return to negative correlation is elusive
• Inflation is much more volatile
• The surge in far-right sentiment is another problem for bonds
• Labour markets are stronger
• Low private-sector leverage in many DMs
• Greater risk of war in the 2020s
• Natural catastrophes have become more frequent
• Reform is well ahead in UK polls
• AfD is regaining momentum in Germany
• Current Trade Recommendations
• Model portfolio performance

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