Goldman says bonds look better, but not enough to load up just yet

What Goldman is arguing

Goldman strategists led by Christian Mueller-Glissman say the jump in yields improves the long-run case for holding bonds, but they are not all-in on extending duration right now. As they put it, "We see a case for a return to more 'normal' strategic bond allocations but the tactical case for adding long-dated bonds is mixed." Higher starting yields can help absorb further rate increases and, over time, steer optimal bond allocations back toward historical ranges.

Near term, there is a wrinkle. Goldman expects the energy shock and the path of interest rates to remain the main forces moving both stocks and bonds. In that setup, lifting bond exposure today would likely make portfolios wobblier rather than provide the usual defensive ballast.

Why the selloff matters now

This week marked a 19-year high for the mean yield across sovereign bonds worldwide, concluding a five-year stretch that stands among the hardest for bondholders in roughly 100 years. Bloomberg notes that worries about inflation are lifting worldwide bond yields, and the downturn has pushed typical funding rates to heights not witnessed in decades.

Goldman frames the shift this way: bonds are becoming more about income than about cushioning risk, "similar to the 100 years before the late 1990s," according to Mueller-Glissman and colleagues.

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What big money is doing and what it means for you

Some heavyweight buyers are already stepping in. On Wednesday, Bob Michele of JPMorgan Asset Management said his group had started purchasing longer-maturity US, Japanese, and Australian government debt, describing prevailing valuations as "simply too cheap."

Goldman's 12-month asset mix sticks with an overweight to equities, a neutral stance on bonds, and an underweight to credit. For your wallet, the takeaway is straightforward: higher yields finally make fixed income pay, but if the energy backdrop and rate path keep whipping markets around, bonds may add bumps rather than smooth them. How you use them right now likely depends on whether you want steadier income or a volatility shock absorber.

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