The two key characteristics government bonds historically brought to portfolios – income and protection from equity markets – have disappeared, rendering them all but uninvestable, according to Kleinwort Hambros CIO Fahad Kamal.
Yields on ten-year sovereign bonds in the UK, US and Germany have all fallen steadily from around 4% to close to, or below, zero today since the Global Financial Crisis, creating a favourable period for fixed income investors. However, with little room for yields to compress further from here, many have questioned the relevance today of the 60/40 equity/bond portfolio asset allocation model. Kamal agreed, noting government bonds have historically done two things in a portfolio: produced a critical income stream, and protected against equity market falls. However, bonds' income gene...
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