US government bonds have long been part of multi-asset client portfolios, with investors owning them as a source of income, diversification, or to dampen the volatility inherent in the rest of the portfolio.
The years after the global financial crisis challenged the first two of those assumptions, with the global central policy of quantitative easing pushing yields towards zero, meaning there was little income and much correlation to equity market returns, although the volatility was minimal.
The correlation proved costly in 2022, as government bonds fell sharply, alongside equities.
The compensation for investors for that lack of correlation was a sharp rise in the income yield offered on government bonds.
Those keen to own the asset for income have, however, had to deal with enhanced levels of volatility and now the greater level of uncertainty around the political outlook in the US, which reduces the appeal of the asset class…
