Higher yields revive the case for a new-look 60/40 portfolio
The recent uptick in U.S. government bond yields has rekindled interest in the traditional 60/40 portfolio strategy among investors. As bonds offer more competitive yields, the risk-reward balance in such portfolios appears more attractive, drawing attention to longer-term investment allocations. This shift can influence currency flows, particularly as the operational rationale behind dollar-denominated assets gains strength amid rising rates.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The framing from Reuters suggests an alignment with views emphasizing rising bond yields as a supportive factor for equities, which is echoed in our forecast consensus.
How firms align
JPMorgan maintains an aligned target of 1.10, suggesting that their view is consistent with the beneficial yields reported. Conversely, BofA's stance is contrary with a conservative target at 1.04, indicating a more cautious outlook in the context of rising yields. For a comprehensive view, please refer to our internal /reports/jpmorgan and /reports/bofa pages.
What the data shows
Recent forecasts have adjusted to reflect the changing economic landscape, emphasizing the impact of rising yields on investment strategies. Notably, additional insights on yield curves and asset allocation can be found in our related research at /research/yield-impact-2023.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Rising bond yields make the 60/40 portfolio attractive again.
- 02Traders may adjust positions in USD as bond yields rise.
- 03Watch for yields above 4% as a potential trigger for equity market shifts.
Market implications
Traders should monitor the 4% yield threshold in the U.S. Treasury market, as it may indicate further portfolio reallocations. Our consensus EUR/USD target of 1.075 remains relevant against this backdrop.
Risks to this view
If inflation data surprises to the upside, it may invalidate the current bullish sentiment on bonds, leading to a potential reversal in the reassessment of the 60/40 strategy.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.60
Sources & References
How we cover this story