Shaking Up Safety
The longstanding image of U.S. government bonds as an unshakable cornerstone in investment portfolios is under strain due to recent market developments. The Federal Reserve's assertive tightening policies, combined with significant government bond issuances to cover expanding deficits, have resulted in unprecedented declines in long-term Treasuries. This shift was further emphasized when Fed Chairman Jerome Powell reiterated his resolve to keep interest rates elevated for an extended duration, causing a notable decline in fixed-income security prices.
A telling sign of the turbulence is the spike in the rolling 90-Day volatility of the Bloomberg U.S. Long-Term Treasury Index surpassing the volatility of the S&P 500 Index. Such an occurrence is a rarity in financial history, and it raises concerns since US Treasuries are traditionally regarded as the safety net in investment portfolios, intentionally designed to insulate investors from the daily ups and downs of the stock market.
This current amount of volatility underscores a key financial principle: it's unwise to rely solely on a single solution to manage risk. Diversification across various asset classes can help alleviate the risks associated with concentration. Our RiskFirst®process strategically combines uncorrelated assets in our portfolios and integrates tactical mandates with the goal of mitigating downside risk.
Shaking Up Safety
Source: Bloomberg, Redwood. Data as of 10/20/2023. The date Ranges are from 10/6/2000 - 10/20/2023. For illustration purposes only.
- We believe the preservation of capital is key to consistent, long-term investment success.
- Our investment approach is grounded in economic theory and backed by quantitative analysis.
- Managing drawdown risk is a pillar from which we build our portfolios.
Disclosure: This piece is for informational purposes only and contains opinions that should not be construed as facts. Information provided herein from third parties is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Charts and graphs are for illustrative purposes only. Discussion of any specific strategy is not intended as a guarantee of profit or loss. Past performance is not a guarantee of future results. The objectives mentioned are not guaranteed to be achieved. Investors cannot invest directly in any of the indices mentioned above. RiskFirst® is a registered trademark of Redwood Investment Management, LLC.