For Risk Reduction, Think Beyond Bonds

Bonds these days are doing little to shore up investors’ bottom lines. In our opinion, that means it’s a good time to look elsewhere for risk mitigation.

Fixed-income investments historically have helped to diversify stock portfolios because their value tends to fluctuate less. Given the S&P 500’s wild fluctuations this year, that should mean bonds have helped provide some stability.

Unfortunately, bond prices have largely tracked stock prices, dampening their potential effectiveness as portfolio risk reducers. For example:

• Long-term bonds are down year-to-date by 1.4%.
• The yield on the 30-year U.S. Treasury has risen sharply this year and briefly hit 5.15% last week—its highest level since 2007. (Bond prices fall as bond yields rise.)
• The latest move was driven by concerns that the Republicans’ proposed tax bill would significantly increase the federal deficit.

(as measured by the Bloomberg Long Term US Treasury Index)

It’s not just 2025, either: Long-term bonds* have actually delivered a negative return over the past decade.

For investors, we believe the message is apparent: Relying solely on bonds for portfolio risk reduction isn’t a sure-fire approach. Other investment strategies, including derivatives, defensive equities, and tactical asset allocation, can potentially provide diversification benefits by reducing exposure to factors that may cause stocks and bonds to move in tandem.

* As measured by the Bloomberg Long Term US Treasury Index, through 05/23/25.

Originally published May 28, 2025

By Mike Dickson, Ph.D.

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The Bloomberg US Treasury: Long Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury with 10 years or more to maturity. This commentary is written by Horizon Investments’ asset management team. Past performance is not indicative of future results. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry, or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice, or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. All investing involves the risk of loss.

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