Long-term treasuries in diversified portfolios

Meketa

Frank Benham, Lily Hillis

Research

18 Pages

Meketa analyzes the role of long-term U.S. Treasuries in institutional portfolios, emphasizing their unique ability to hedge equity drawdowns, dampen volatility, and enhance liquidity during stress periods. The study quantifies how these bonds preserve value in recessions, support risk-mitigation frameworks, and improve portfolio efficiency despite low expected returns and inflation sensitivity.

Key Takeaways

Crisis protection: Long-term Treasuries outperformed all major asset classes in six of thirteen historical market shocks, including the 2008 Global Financial Crisis and 2020 COVID selloff.
Portfolio enhancement: Adding 10–15% long-term Treasuries to a 70/30 equity-bond mix raised Sharpe ratios from 0.38 to 0.40 with lower volatility.
Inflation risk: In inflationary periods, long bonds underperformed, averaging –9% annualized in extended inflation spikes, underscoring their vulnerability to rate increases.
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