Bonds are selling off as stocks tumble. Here’s what it means for 60/40 portfolios

The balanced portfolio – an allocation that's split 60% toward equities and 40% in bonds – suffered in this week's market tumult, but investors should think twice before they abandon the model. Earlier this week, investors' fears of the Federal Reserve's "higher for longer" rate policy shook up both the fixed income and equity markets. The 10-year Treasury yield shot up to levels not seen since 2007, raising concern that the benchmark rate could soon touch 5% .

" "Once you settle at this higher level of rates, there's no reason why the correlations shouldn't go back to normal," he added. For investors, the pain of the price decline now in fixed income can overshadow the eventual income opportunity from higher yields over the longer term. "[I]nvestors still hate bonds at these levels – rates we would've dreamed of two years ago," said duQuesnay. "That's pretty shocking.

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Stock market might not bottom until investors surrender, jump back into bondsWilliam Watts is MarketWatch markets editor. In addition to managing markets coverage, he writes about stocks, bonds, currencies and commodities, including oil. He also writes about global macro issues and trading strategies. During his time at MarketWatch, Watts has served in key roles in the Frankfurt, London, New York and Washington, D.C., newsrooms.
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