Are Bonds Becoming a Better Investment for Portfolios?

Bonds are becoming more attractive for long-term portfolios, but equities still offer the better relative return over the next few months and a standard 60/40 allocation needs diversification.

• Goldman Sachs Research expects earnings growth to support equities in the near term, particularly as technology and artificial-intelligence companies continue to show strong earnings momentum.
• Bonds offer more carry as yields rise, but their risk remains elevated because of Middle East tensions, uncertain inflation and monetary policy, and rising French and Italian yields relative to Germany.
• Equity-bond correlations have recently been positive, reducing bonds' diversification benefit; they could become more negative if inflation normalizes or tighter financial conditions slow growth.
• Short- to medium-term government debt appears more attractive than longer maturities because it yields nearly as much while being less exposed to further central-bank rate increases.
• Over the long term, Goldman Sachs' framework points back toward a 40% bond allocation: the 10-year US Treasury yield is 5.3%, above its 4.7% average over the past 250 years, although fiscal and inflation risks remain.

Takeaway: Investors with short horizons should not automatically increase duration, while longer-term investors can rebuild bond exposure around a 60/40 core and add TIPS, real assets, hedge funds, private equity, factor strategies and CTAs for inflation protection and risk mitigation.