The Long Bond Revolt is Making a Comeback in a Chaotic Market With a 60/40 Split

The recent plunge in long-term U.S. Treasury bonds is casting a shadow over the resurgence of the classic 60/40 investment strategy—a staple approach that blends stocks and bonds to manage risk while aiming for stable returns.

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Traditionally, this portfolio allocates 60% of assets to equities and 40% to bonds, offering both growth potential and income stability. However, in recent years, the effectiveness of the model had been called into question as the usual inverse relationship between stocks and bonds broke down, with both moving more in tandem than in opposition.

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This year, though, the 60/40 model has seen a modest revival. Through mid-May, a U.S. benchmark tracking the 60/40 approach returned about 1.6%, outperforming the S&P 500 over the same period—and with lower volatility—according to data.

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This success comes as the typical inverse correlation between equities and bonds has re-emerged. Over the past six months, the negative correlation between U.S. stocks and fixed income assets has reached its most extreme level since 2021, meaning that bonds have once again begun rising when stocks fall, and vice versa.

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Jeff Given, a senior portfolio manager at Manulife Investment Management, believes that the strategy still holds value over time, especially when markets behave in a more traditional manner.

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Still, new headwinds have emerged. The yield on benchmark 30-year Treasury bonds recently surged above 5%, reaching levels not seen in nearly two decades. The cause? Growing investor unease over the U.S.’s rising debt levels and persistent budget deficits. Market concerns intensified last week as Republican lawmakers debated President Donald Trump’s signature tax cut initiative, which is projected to add trillions to the national deficit. In response, Moody’s downgraded the U.S.’s credit rating, citing fiscal risks.

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The sharp rise in long-term yields is impacting broader markets. Stock prices fell alongside the U.S. dollar, reflecting unease across asset classes. This synchronized selloff resembles the turmoil seen in April when Trump’s aggressive trade policies triggered a broader selloff and raised doubts about Treasuries’ traditional role as a haven.

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According to Greg Peters, co-chief investment officer at PGIM Fixed Income, longer-term bonds are beginning to behave more like risk assets than the stable, defensive instruments they’re typically considered. Meanwhile, Treasury Secretary Scott Bessent attempted to calm market nerves, saying he wasn’t overly worried about rising yields and noted that foreign investors had recently stepped up their purchases of U.S. government debt.

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Despite the turbulence in long-term Treasuries, some analysts argue that the 60/40 strategy is not broken—just under strain. Andrzej Skiba, head of BlueBay U.S. fixed income at RBC Global Asset Management, suggests the key is selecting bonds wisely across the yield curve.

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While longer maturities face pressure due to deficit concerns and rising yields, shorter-dated securities are holding up better. These shorter-term bonds are more responsive to Federal Reserve interest rate cuts that could follow any economic slowdown, making them more resilient in the current environment.

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Skiba remains optimistic about fixed income’s protective role. He believes that even though deficits have affected valuations at the long end of the curve, the shorter-term side can still behave in line with expectations should recession fears resurface.

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Indeed, recent market data supports this viewpoint. Year-to-date, shorter maturity bonds have outperformed their longer-term counterparts, a trend known as curve steepening. While 30-year yields have climbed more than a quarter-point this year, two- and five-year yields have actually fallen as investors sought refuge in short-term debt. This “steepener” trade has gained popularity as investors brace for slower growth alongside elevated inflation and fiscal concerns.

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This performance has helped bond indexes maintain a negative correlation to equities. The Bloomberg Treasury Index, which focuses more on short- to medium-term bonds, has an average interest-rate duration of just 5.7 years—significantly shorter than 30-year bonds—making it less vulnerable to long-term fiscal fears.

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As of mid-May, Treasuries were down nearly 1.8% for the month, but they still showed a gain of over 1.7% for the year. The S&P 500, on the other hand, surged more than 4% in May after three months of losses that nearly pushed it into bear market territory.

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Meera Pandit, a global market strategist at JPMorgan Asset Management, emphasized that diversification within fixed income has proven effective and will likely continue to provide value in navigating market uncertainty.

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Stock valuations have also rebounded on the back of positive trade developments and strong tech earnings. However, with the S&P 500’s earnings yield dropping to 3.95%—below the 10-year Treasury yield—some investors are re-evaluating their allocations. Historically, such a gap suggests future stock returns may only reach 6–7%, making them less appealing when compared to bond yields, which now average around 4.8%, according to Manulife’s Given.

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Given, like many other investors, prefers intermediate-term bonds—particularly five-year notes—as a hedge against risks associated with rising government debt. “I think the belly of the curve may be a better risk hedge than the 30-year,” he said.

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Sameer Samana, head of equities and real assets at Wells Fargo Investment Institute, echoed that view. He sees the recent strength in equities as a chance for investors to shift towards cash and bonds—but advises caution against extending too far out on the yield curve.

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In sum, the 60/40 strategy may be facing new pressures, but its core logic remains intact. With thoughtful adjustments, especially in bond selection, the approach continues to offer balance in today’s unpredictable markets.

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