Higher yields revive the case for a new-look 60/40 portfolio
TLT•Higher Treasury yields are renewing investor interest in 60/40 portfolios, with yields above 5% across parts of the US curve. September fund flows favored short-term government bonds and loan-participation funds, while investors withdrew money from corporate and high-yield bond funds.
1. Yields bolster bond appeal
Investors are reassessing the traditional 60% stock, 40% bond strategy as a government-debt selloff lifts yields and increases potential bond income. Some investors see current yields as a cushion against further price declines. Bank of America’s October fund manager survey found the 10-year Treasury yield would need to reach about 5.9% to prompt a meaningful rotation out of equities; Rajat Kumar of Three Pins Capital said a move toward 5.5% could slow the US economy and limit further Federal Reserve rate increases.
2. Flows favor selective income
LSEG Lipper data showed investors put $14.5 billion into short-term US government bond funds and $4.9 billion into loan-participation funds in September, while withdrawing $4.9 billion from corporate bond funds and $4.5 billion from high-yield funds. Analysts said the bond allocation in a 60/40 portfolio increasingly includes securitized assets, municipal bonds, preferred securities and floating-rate instruments such as leveraged loans and AAA-rated collateralised loan obligations.
