For a long period, government bonds with a long duration offered the almost perfect hedge against price losses in risk assets. They generated positive returns and, as safe havens, regularly compensated for part of the losses during stock market corrections. This correlation property between government bonds and equities was crucial to the success of static multi-asset approaches. Today, investors struggle not only with the low yield but often with negative expected returns from government bonds. Also, the relationship between government bond and equity performance, which was predominantly negative for many years, is currently rather positive. The current pattern is likely to dominate in the coming years as well. This synchronisation reduces diversification in portfolios, causes difficulties for risk-conscious investors and requires multi-asset investors to take a more flexible, opportunistic approach and seek alternative hedges rather than a static mix of equities and bonds.
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