Bridgewater Associates examines the implications of a world where bond yields are near zero across major economies, reframing how investors should think about risk, return, and portfolio construction. The paper argues this environment is historically unique, with limited upside in bonds and reduced policy flexibility, raising questions about whether traditional diversification still works.
Grappling With The New Reality Of Zero Bond Yields Virtually Everywhere
Bridgewater
Bob Prince
Research
28 Pages
Key Takeaways
Limited Bond Upside: Starting yields near 0.6% imply forward returns as low as 2.3% annually, even if rates fall to 0%, versus 4.3% in past zero-rate periods.
Asymmetric Risk Profile: With yields near zero, downside is effectively uncapped while upside is limited, as rates could rise far above 0% but only fall toward roughly -1%.
Weaker Portfolio Diversification: Traditional 60/40 portfolios lose shock absorption, as bonds no longer provide meaningful gains during equity drawdowns when rates cannot fall further.
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