Despite geopolitical strains, elevated borrowing, and shifting policy dynamics, the global economy has shown notable resilience over the past 12 months. Valuations across major asset classes (including equities, gold and high yield credit) remain elevated, even as several macroeconomic indicators point to potential softening beneath the surface. We believe these tensions highlight the importance of a flexible and globally diversified fixed income approach, one that can adapt to rapidly evolving conditions across markets, sectors, and currencies.
Regardless of an investor’s base case, holding some defensive ballast against future potential volatility has historically been a prudent way to maintain exposure to risk markets like equities. Developed market government bonds have long been used for this purpose, helping to provide stability during periods of stress. However, with developed market governments continuing to borrow at historic levels and central bank balance sheets contracting, such bonds may not always deliver the defensive qualities investors have relied upon.
These developments do not suggest a complete departure from government bonds as a defensive anchor in portfolios; rather, we think they highlight that the traditional approach may no longer be sufficient on its own. One potential option is to seek defence from a broader array of sources and to extend diversification beyond traditional boundaries. A dynamic approach allows these components to be combined and adjusted as conditions evolve.
Read the full ‘Thought Leadership’ article at the link below
Supporting documents
Click link to download and view these filesDynamic Global Bonds — investing across the cycle
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