Asset Allocation

Should Investors Worry About Rising Real Yields?

Topics - Asset Allocation Portfolio Construction

Read Time - 30 mins

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Should Investors Worry About Rising Real Yields?

Many investors worry about the current level of real yields which are low from a historical perspective. Low real yields — not just on bonds but on most assets — anchor long-term future returns to low levels. A sharp increase in real yields would be even worse news as it would trigger sudden capital losses, but rising real yields are not a foregone conclusion. If real yields rise, they need not rise together and are more likely to exhibit a gradual normalization, which would be a more benign outcome than a sharp rise.

Still, given common worries about bond-related tail events, we document the response of various asset classes and strategies in historical episodes of sharply rising real bond yields. Overall, investor portfolios tend to suffer less in bond-related tail events than they do in equity-related tail events.

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The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.


Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. The hypothetical performance shown was derived from the retroactive application of a model developed with the benefit of hindsight.  Hypothetical performance results are presented for illustrative purposes only.


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