HSBC Asset Management highlights that recent US Treasury moves look counterintuitive, with stronger US data but lower 10-year yields near the bottom of their 12‑month range. The bank links this to stress in risk assets and renewed demand for havens. It cautions that tariffs, AI-related capex and fiscal dominance risks mean Treasuries’ diversifying role may not be durable.

Confusing rally questions diversification durability

"US Treasury market action has been confusing of late. Economic data are surprising to the upside, which would usually be expected to weigh on bonds. However, 10-year yields have dipped by around 0.20% this month, leaving them towards the bottom of their 12-month range."

"The catalyst isn't found in January’s payrolls print, which points to a labour market that may be stabilising. Rather, recent market distress appears to be a primary driver of bond moves. With the US tech trade faltering, crypto slipping, and gold and silver losing their lustre simultaneously, investors are returning to traditional havens."

"For the 60/40 investor, this is a welcome return to orthodoxy: after a long hiatus, Treasuries are working as a portfolio shock absorber again – for now. But with tariffs keeping goods prices frothy and the colossal AI capex binge posing upside inflation risks, a negative correlation between stocks and bonds isn’t guaranteed."

"The spectre of fiscal dominance also looms large, with the debt burden and weight of Treasury supply this year. So, while bonds have offered some shelter from the risk-off storm in the last couple of weeks, there’s still a need for other diversifiers in resilient portfolios."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)