The Problem With Bonds, According To Morgan Stanley
For the past couple of years, warnings that government bonds may no longer be a reliable diversifier have become more shrill.
For decades (literally), owning benchmark Treasurys was a (mostly) foolproof way to Teflon-coat a simple multi-asset portfolio. The vaunted 60-40 split was (and still is) the bedrock of starter portfolios, and the assumed negative correlation between stocks and bonds is a key underlying assumption for many a model.
Just as important, the idea that government bonds are l
I just don’t know about Dr H…………. this time…….That last sentence is a bit cryptic for want of a better word …Lol…….
How about bonds viewed as a standalone investment? Yields low, duration risk, credit fundamentals iffy, but Fed backstop, and volatility is lower than stocks.
Not a buyer at all of this thesis until long US Treasury rates are at least close to zero bound. Take a look at the price action today and tell me if this theory has legs. And remember this holds true for US Treasury bonds only- corporates and municipals have a mild POSITIVE correlation with stocks much of the time- generally with much lower volatility. However, US Treasury bonds historically are not perfectly inversely correlated with stocks through history anyway- this relationship works about 70% of the time only. Ask any decent risk manager, there is no such thing as a perfect hedge. RIsk is also correlated with position size, even if there is a hedge.