Longer-term Treasuries are increasingly acting like risk assets, shaking investor assumptions and changing widely accepted asset allocation conventions.
There was a time when the safest place for investors to hide was at the far end of the yield curve.
No matter the crisis, no matter the volatility in equity markets, long-term US Treasuries were the ballast — the part of the portfolio that investors never needed to worry about.
But that reflex is now under direct attack and the investment world is still reacting far too slowly.
The sharp selloff of 30-year US government bonds in May, which briefly sent yields surging above 5 per cent, is not just a technical wobble or a seasonal repricing. It is confirmation that one of the most trusted assumptions in modern portfolio theory is losing its grip.
Long bonds — the bedrock of traditional diversification — are behaving more like risk assets…
