For decades, U.S. Treasury bonds have been considered the ultimate safe haven for investors navigating turbulent markets. This reputation for stability and reliability has led generations of financial advisors to recommend the classic 60-40 portfolio allocation—60% stocks and 40% bonds—as the gold standard for balanced investing. However, according to a new list of portfolio managers now, a confluence of concerning factors suggests investors may need to reconsider their traditional approach to U.S. bond allocations in today’s increasingly complex financial landscape.
Unprecedented Volatility in the Bond Market
The U.S. bond market experienced remarkable turbulence throughout April, with yields fluctuating dramatically between just under 4.5% and below 4% in less than a week. These sharp movements, unusual for an asset class historically known for its stability, signal growing uncertainty about the U.S. economic outlook. Such volatility raises fundamental questions about whether bonds can continue to fulfill their traditional role as portfolio stabilizers during market downturns.
“It’s very difficult to reliably predict what’s going to happen in the bond market, because there are competing pressures, and the stakes are getting higher, and the pressures are getting greater,” explains De Goey, a portfolio manager at Designed Wealth Management. “The consequences are greater, and that just means that the bond market is riskier than it used to be.”
This increased volatility comes at a time when multiple economic warning signs are flashing. The looming threat of recession, coupled with persistent inflation creating stagflation concerns, has contributed significantly to the bond market’s uncertain trajectory. These competing pressures make forecasting bond performance increasingly challenging, even for seasoned market observers.
Foreign Governments Reducing U.S. Bond Holdings
Adding to these concerns is an emerging pattern of foreign governments and central banks reducing their U.S. Treasury holdings. Canada, China, and Japan have all reportedly divested significant portions of their U.S. bond holdings in recent months. De Goey suggests this trend may represent a strategic response to President Donald Trump’s unpredictable trade policies.
“Government bonds are not perceived as being as safe as they once were,” De Goey notes. “Part of that is because I believe central banks and governments outside of the U.S. will be using monetary policy as a lever to bring Trump’s more draconian trade policy to heel.”
This observation highlights how geopolitical tensions are increasingly influencing what were once purely financial considerations. As major foreign holders reduce their U.S. bond allocations, the potential for increased volatility in this market grows, further undermining the traditional safe-haven status of these securities.
The Changing Role of Bonds During Market Downturns
Historically, one of the primary justifications for maintaining significant bond allocations has been their tendency to perform well during stock market crashes. De Goey points to the stock market crash of 1987 as a classic example of this inverse relationship.
“In 1987 when the stock market dropped over 20 percent one day, 60-40 investors didn’t lose nearly as much, because not only did they have 40 percent that was not in the stock market, but there was a flight to quality. And the bond market rallied by eight or nine percent in one day in 1987 because the stock market was crashing,” he explains.
This protective function has been a cornerstone argument for the 60-40 portfolio model for generations. However, De Goey believes this relationship has weakened considerably in today’s economic environment. Recent market episodes have shown that bonds no longer consistently provide the counterbalance to equity market declines that investors have come to expect.
“If the main reason for people holding bonds is to have an insulator so that they are protected when the stock market drops, I would say that that rationale has weakened,” De Goey argues.
The 2022 market offers a compelling case study of this changing relationship. During that period, both stocks and bonds declined simultaneously as the Federal Reserve aggressively raised interest rates to combat inflation—a departure from the historical pattern of bonds rising when stocks fall. This synchronized decline dealt a severe blow to balanced portfolios and forced many investors to reconsider long-held assumptions about asset allocation.
The Geopolitical Dimension of Economic Policy
De Goey’s analysis extends beyond pure financial considerations to encompass the broader geopolitical context. He suggests that President Trump’s trade policies should be viewed as part of a larger contest for global economic dominance—what he characterizes as a “proxy war without guns” for geopolitical primacy.
“We have an economic trade war. It is a proxy war without guns, but it is nonetheless, a clear war for geopolitical primacy,” he observes. “That’s happening right in front of our eyes.”
This framing helps explain why traditional economic relationships and market behaviors may be changing. When economic policies become instruments in geopolitical struggles, markets can behave in ways that defy historical patterns. The resulting uncertainty further complicates investment decisions, particularly regarding assets like U.S. Treasury bonds that are directly tied to government policies.
A New Allocation Model: 50-30-20
Given these shifts in market dynamics, De Goey recommends investors consider moving away from the traditional 60-40 portfolio allocation toward a more diversified 50-30-20 model. In this revised approach, equity exposure would be reduced to 50% of the portfolio, bond allocations would decrease to 30%, and the remaining 20% would be directed toward alternative investments.
“I would say that the argument for exposure to bonds is going down, and it should be less than 40 percent for a traditional balanced portfolio,” De Goey states.
Importantly, De Goey does not advocate eliminating bond exposure entirely. U.S. Treasury securities still offer certain advantages, including liquidity and a history of relatively stable returns compared to more volatile asset classes. However, he suggests that their role in a balanced portfolio should be reduced to reflect their changing risk-reward profile in today’s market environment.
Alternative Income-Generating Investments
For the 20% allocation to alternatives, De Goey points to several options that can potentially provide the steady income streams that investors have traditionally sought from bonds. These include real estate investments, renewable energy projects, and more unusual options like music royalties.
“I’m using some offer memorandum products that pay a regular cash flow based on music royalties,” he explains. “Mortgages if you want an interest income. The real estate market is fairly robust, and I think that’ll be fine.”
These alternative investments share certain characteristics with bonds—namely, the potential to generate regular income—but they derive this income from different sources and may respond differently to economic conditions than traditional fixed-income securities. This diversification of income sources is precisely what makes them valuable in a period when traditional bonds face multiple challenges.
Real estate investments, for instance, can provide rental income and potential appreciation, while also potentially offering some protection against inflation—a significant advantage in the current economic environment. Similarly, renewable energy projects often feature long-term contracts that provide predictable cash flows, somewhat insulated from broader market volatility.
Music royalties represent a more unconventional alternative but exemplify the kind of uncorrelated asset that can enhance portfolio diversification. Royalty streams from established musical catalogs tend to be relatively stable regardless of economic conditions and may continue to generate income through various market cycles.
A Time for Strategic Reassessment
While De Goey’s recommendations represent a significant departure from conventional wisdom, they reflect a thoughtful response to changing market realities rather than a reactive abandonment of time-tested principles. The core insight is that investment strategies must evolve as market conditions and relationships between asset classes change.
The traditional 60-40 portfolio emerged during a different economic era with different geopolitical dynamics. Today’s investors face a more complex landscape characterized by greater interconnection between markets, increasingly unpredictable trade policies, and a shifting balance of global economic power. In this environment, rigid adherence to past allocation models may expose portfolios to unnecessary risks.
At the same time, De Goey’s approach maintains the fundamental principles of diversification and risk management. By reducing rather than eliminating bond exposure and adding alternative investments with income-generating potential, this strategy aims to preserve the stabilizing elements of traditional balanced portfolios while adapting to new market realities.
Looking Forward
As investors navigate this changing landscape, flexibility and vigilance will be increasingly important. The unprecedented volatility in U.S. bond markets observed in April may represent the beginning of a new normal rather than a temporary anomaly. If so, investment strategies will need to continue evolving in response.
For individual investors, these developments underscore the importance of working with knowledgeable financial advisors who understand both traditional allocation principles and emerging market dynamics. The optimal portfolio allocation will always depend on individual circumstances, time horizons, and risk tolerance, but awareness of these broader trends can inform better decision-making across various investor profiles.
While U.S. Treasury bonds are unlikely to lose their place in diversified portfolios entirely, their role is changing in meaningful ways. By recognizing this evolution and responding thoughtfully, investors can position themselves more effectively for an increasingly complex and unpredictable financial future.
Acknowledgment: This article was written with the help of AI, which also assisted in research, drafting, editing, and formatting this current version.
