US Long Bond Slump Threatens Revival Of 60/40 Investment Strategy

The traditional 60/40 investment strategy is facing a potential setback due to a slump in the US long bond, stirring unease among investors.

What Happened: The 60/40 portfolio, a time-honored investment approach that balances risk with a steady income, is feeling the heat. This strategy, which assigns 60% of holdings to stocks and 40% to bonds, has been a go-to for retirement savers for many years.

However, its allure has dwindled in recent years as US stocks and bonds have begun moving in sync rather than counterbalancing each other.

As per the report by Bloomberg, this year, the strategy has exhibited signs of a resurgence, outpacing the S&P 500 Index and showing lower volatility. A crucial element in this revival has been the reestablishment of the traditional inverse relationship between stocks and bonds.

However, this equilibrium is now at risk due to a slump in benchmark 30-year Treasury bonds, which has pushed yields above 5% towards the highest in nearly two decades. This has made investors cautious of holding long-term US debt amid spiraling debt and deficits.

Also Read: US Bond Market Faces Turbulence as GOP Budget Bill Raises Deficit Concerns

Despite the hurdles, some experts still see value in the 60/40 strategy. “A balanced approach does make sense in the longer term,” Jeff Given, a senior portfolio manager at Manulife Investment Management told the outlet.

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Others, like Andrzej Skiba, head of BlueBay US fixed income at RBC Global Asset Management, propose that the key is to select the right bonds along the yield curve.

Why It Matters: The 60/40 strategy has been a reliable approach for investors seeking balance and risk management. Its potential setback due to the US long bond slump could significantly impact retirement savers and other investors who rely on this strategy.

The rise in yields of 30-year Treasury bonds and the increasing US debt and deficits add to the uncertainty, making it crucial for investors to carefully consider their investment strategies.

The expert views suggest that while the 60/40 strategy may still hold merit, the selection of the right bonds is key to navigating the current market conditions.

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