KKR Says Bonds’ Role as Portfolio ‘Shock Absorbers’ Is Eroding

Government bonds are no longer working as an effective hedge against risky assets, creating a challenge for global investors and spurring a search for asset diversification, according to KKR & Co.

Bigger fiscal deficits and stickier inflation suggest that bonds will not always rally when stocks sell off, breaking down the traditional relationship between the two assets, Henry McVey, KKR’s head of global macro and asset allocation, said in a research note.