Global Markets Daily Re Assessing the Value of Duration for Balanced Portfolios

Economics Research 21 September 2026 | 10:50AM BST

Global Markets Daily: Re-Assessing the Value of Duration for Balanced Portfolios

n Global bond yields have risen sharply YTD, driven by stronger nominal growth, Christian Mueller-Glissmann, CFA lingering inflation, fiscal concerns and increased competition for capital from AI. | christian.mueller- From here, the optimal bond weight in a balanced portfolio will be conditioned Goldman Sachs International

by (1) relative return, (2) relative risk, (3) diversification benefits and (4) the Andrea Ferrario | return on cash. Goldman Sachs International n In the very near term energy prices and central bank policy will likely drive both Alessandro Giglio | bonds and equities – rates relief would support both but continued increases in Goldman Sachs International yields could weigh more on equities. Over the next few months, resilient earnings Elena Porfidia growth should continue to support risk-adjusted returns for equities vs. bonds. | Over longer horizons, higher starting yields should lift optimal bond allocations Goldman Sachs International

from the unusually low levels of the past five years towards historical norms. n There is unlikely to be an immediate return to the simple 60/40 portfolio template. Receiver swaptions on front-end rates can provide a more convex hedge for a recession, but also benefit from a potential relief in the event of lower energy prices. Bond-like equities can improve diversification with a growing number of stocks with a negative beta. On the flip side, equity-like bonds such as convertibles look more attractive to improve asymmetry.

Re-Assessing the Value of Duration for Balanced Portfolios

In “GOAL Post: The name is bond — rethinking duration in balanced portfolios” we set out a framework for assessing the role of bonds in multi-asset portfolios after the sharp rise in yields. Here we highlight the key investment implications, focusing on the drivers of bond allocations across tactical, medium-term and strategic horizons and where investors can find attractive sources of carry, convexity and diversification.

Global bond yields have risen sharply YTD, driven by a combination of cyclical support, rising energy prices due to the Middle East war, crowding out from AI debt issuance and fiscal concerns. This follows the large bond sell-off in 2022. As a result, over the past 5 years US 10-year bonds delivered the worst return in more than a century – in real terms, returns were nearly as low as after WW1 and WW2 and in the 1970s.

However, despite the material bond sell-off, current levels of bond yields are not unusually high compared with long-run history – they were just unusually low during the post-GFC cycle. In fact, the current US 10-year yield, at 5%, is close to the average of 4.7% over the last 250 years (Exhibit 1, excluding the 1970s results in

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Goldman Sachs Global Markets Daily

an average of 4.5% but during WW2 the Fed anchored long-dated bond yields via yield curve control, suggesting bond yields would have been much higher). Admittedly, such a long history is not comparable to now, as macro conditions have been more friendly for the current generation of bond investors. But, the macro regime has materially shifted, with multiple cyclical and structural headwinds for bonds.

Exhibit 1: Higher but not high - normalisation from post-GFC cycle levels 10-year government bond yields. Yearly data. Dashed line is historical average for US.

US nominal yield World nominal yield (GDP-weighted)

Source: Bank of England, Datastream, Goldman Sachs Global Investment Research

Are bonds becoming more attractive again for multi-asset portfolios? Based on Markowitz’ Modern Portfolio Theory the optimal bond weight in a balanced portfolio is a function of (1) relative return, (2) relative risk, (3) diversification benefits and (4) the return on cash. With higher equity/bond correlations the optimal bond weight decreases, and that means lower Sharpe ratios and higher portfolio…