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

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Portfolios that are split 60% toward equities and 40% toward fixed income were routed this week as price declines hit both asset classes.

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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