There were unconfirmed reports of significant selling pressure and unwinding of long maturity Treasury positions from the institutional investor community. Fixed income securities, particularly sovereign debt such as Treasuries, have historically served as the ballast in a portfolio comprised of risky assets, whether equities, real estate, or commodities.

The low correlation with risky assets is what has contributed to the widely adopted 60/40 equity/fixed income portfolio mix. Typically, long duration Treasuries perform well in a volatile risk-off environment, as investors price in a lower interest rate regime on expectations of a deflationary-driven growth slowdown.

By Benjamin M. Lavine, CFA, CAIA, RICP
Chief Investment Strategist, Freedom Advisors & Chief Investment Officer, 3D, a Freedom Advisors company