Why the 60/40 model is here to stay

Asset allocation in a low-return environment

As the global economy recovers from the impact of the Covid-19 pandemic, some investors are questioning the case for a balanced portfolio of stocks and bonds, including the classic 60/40 model – particularly if bonds suffer a period of weakness due to rising inflation and interest-rate expectations.

Although bond yields remain close to historic lows, they have trended higher since August 2020 as prices have fallen. At the time of writing, the 10-year US Treasury yield is up more than 40 basis points (bps) in 2021, with the 10-year gilt yielding around 39bps more than at the start of the year. The downward pressure on bond prices stems from recent economic data. Headline inflation figures rose across key markets in the first half of 2021, prompting markets to price in sooner-than-expected interest rate hikes from central banks as a means to prevent higher inflation taking hold....