
Multi-asset fund managers have a problem - explicit or implicitly, the Fed looks set to cap Treasury yields for years to come without pushing interest rates and yields into negative territory - trapping bonds performance and cutting their volatility. That potentially damages the role of U.S. government bonds as a hedge against recession and equity market drawdowns - where rising bond prices typically offset stock market losses in mixed portfolios. The last week's 10% shakeout in the Nasdaq and 7% retreat of the S&P500 prove the point as bonds barely flickered. The search for alternatives is well under way - gold, the yen, hybrid equity/debt securities and even yield curve plays have been touted as replacements.
Chart and commentary by Mike Dolan.
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