Executive Summary
For the first time since 2019, bonds offer positive real yields across the curve. With 10-year Treasuries yielding 4.5% and inflation expectations anchored around 2.5%, fixed income is no longer a guaranteed loss in real terms.
This marks a regime change. The bond bear market that began in 2020 appears to be over.
Why Now?
Three factors converge to make bonds attractive:
- Real yields turned positive: 10Y TIPS yield ~2%, highest since 2009
- Fed hiking cycle complete: Terminal rate reached, cuts likely in H2 2025
- Recession risk rising: Leading indicators suggest 40% probability of downturn
Portfolio Implications
The traditional 60/40 portfolio—60% stocks, 40% bonds—was declared dead during the 2022 bear market when both asset classes fell together. We believe it's time to resurrect it.
Our recommended allocation:
- 35% US equities (down from 60%)
- 40% investment-grade bonds (up from 20%)
- 15% international equities
- 10% alternatives (gold, commodities)
Duration Strategy
We favor intermediate duration (5-7 years) over long-duration bonds. The yield curve is still inverted, meaning you get paid more for taking less duration risk.
Avoid long-duration bonds (20-30 years) unless you have strong conviction that the Fed will cut rates aggressively.
Credit vs. Treasuries
Investment-grade corporate spreads are tight at ~100bps over Treasuries. We prefer Treasuries over credit given limited spread compensation for default risk.
High-yield spreads at ~350bps offer better value, but only for investors comfortable with equity-like volatility.
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