While assets in fixed-income funds climbed to $7.9 trillion as of May 31, their share of portfolios fell to 20.3% from 25.7% in 2016, and down 4.8% from 2025 as investors shifted toward equities and other asset classes, marking the lowest month-end concentration since May 2008, Morningstar data showed.
Over the long run, bond returns can be eroded by persistent inflation, a weakening currency, and supply outpacing demand, said Grant Johnsey, market solutions head at Northern Trust.
"Many investors are worried that one or more of these variables will play out in the coming years," he added. "The issue with the bonds is that when you go out past five years, there are too many potential downside headwinds and not enough tailwinds behind it."
The Federal Reserve held rates steady at 3.50% to 3.75%, while yields are hovering around 4.6% on the 10-year and 5.1% on the 30-year, suggesting investors expect inflation to remain sticky and are demanding a premium for locking up money for longer periods.
In response to inflation concerns, some investors are turning to assets that can better preserve purchasing power in a world being shaped by deglobalization, supply constraints and higher defense spending.
Stephen Harvey, chief investment officer at Sagard Wealth Management in Toronto, said the world remains broadly "pro-growth, pro-inflation," and fiscal policy now matters more than monetary policy in shaping markets.
Sagard Wealth has spent the past year moving clients away from most developed-markets fixed income and into a "preservation bucket" mix of commodities, gold, real estate and infrastructure, with Harvey saying, "fixed income is the inflation loser."
Real assets, tangible assets valued for their intrinsic physical qualities, have been gaining appeal since the post-Covid inflation shock, with the case strengthening as the bond outlook clouds and soaring equity markets appear vulnerable, said Jenn Bender, global chief investment strategist at State Street Investment Management.
State Street has seen the strongest flows this year into commodities, with infrastructure and natural resources drawing interest. Its flagship real asset strategy drew about 6% in net inflows in 2025, with momentum continuing this year.
Performance through May 31 underscores the appeal. Broad commodities returned 23.2%, global natural resources 19%, and U.S. REITs 13.6%, according to State Street data, while U.S. Treasuries were flat.
"The worry is that there is some downside risk in equities. Fixed income is not the place that people want to move their equity allocations over to," said Bender. "Basically, real assets is kind of where you end up."
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