Will Bonds Become a Better Hedge for Investment Portfolios?
While investors often view bonds as a portfolio diversifier—and a hedge against their equity holdings—they have not been effective in that role lately, says William Marshall, head of US Rates Strategy in Goldman Sachs Research. However, bonds could become more useful for hedging soon. Marshall separates the signal from the noise.
Transcript:
William Marshall: Bonds have not been a big help in portfolios recently.
When stocks dropped in March, bond prices fell as well. And more recently, stocks and bonds have been rising together. As an investor, that's not really what you want to see. People often think of bonds as a hedge to their stocks, helping to balance and diversify their portfolio against growth shocks. So when stocks fall, they would hope bonds maintain their value, or even rise.
But the recent correlation between stocks and bonds has been its highest since the late 1990s. Why is that?
A lot of this is due to the conflict in Iran and the supply shocks we've seen as a result. When global supplies aren't constrained and shifts in demand are driving the economic outlook, better growth and higher inflation tend to go hand in hand. But supply shocks push growth and inflation in opposite directions. Slow growth is bad for stocks, while high inflation is a headwind to bonds.
With both stocks and bonds reacting to headlines out of the Middle East, the two markets are moving together. The good news is that this situation is unlikely to continue indefinitely.
If we see Iran-related supply issues resolve, then bonds can return to their more normal relationship to stocks—and become a more useful part of multi-asset portfolios.
Recorded on May 29, 2026.
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