Do bonds still have a role in global portfolios?

Bonds are regaining a role in portfolios because higher yields have improved prospective returns and diversification, although inflation, fiscal deficits and leveraged positioning still warrant caution.

• US 30-year Treasury yields exceeded 5.6% in late September 2026, their highest level since 2002, while UK 30-year gilt yields reached 6% on 1 October, a level not seen for almost three decades.
• Strong nominal growth—6.3% annualised in the US and 4.4% in the euro area—is supporting corporate revenues and profits but keeping inflation, policy rates and bond term premia under pressure.
• US PCE inflation is 3.4%, above the Federal Reserve’s 2% target for the fifth consecutive year, while UK headline inflation is 3.1% and services inflation remains sticky despite core inflation at 2.6%.
• Fiscal and supply pressures are significant: 10-year yields rose 130 basis points in France, 113 basis points in the US and 96 basis points in the UK during 2026, while the five major hyperscalers issued about $220 billion of debt this year.
• The negative stock-bond correlation expected to return in 2026 could restore the diversification benefit of the 60/40 portfolio, after both asset classes fell together during the 2022 inflation shock.

Takeaway: Sarasin has moved from underweight to neutral in government bonds because UK investors can obtain yields above 4.75% for maturities under two years and US investors can obtain inflation-protected yields above 2.5%, but rising yields, inflation, heavy issuance and leveraged positions argue for continued caution.