A shift is underway among some U.S. investors who have long depended on bonds to soften the blow during stock market downturns. Faced with persistent inflation concerns, many are now carving out more space in their portfolios for commodities, infrastructure, private credit, and other assets that tend to hold up better when prices rise.
Heavy government borrowing, uncertain policy conditions, and episodes where stocks and bonds have fallen at the same time have all chipped away at bonds’ traditional role as a stabilizing force. While U.S. consumer inflation has cooled to 3.5%, growing tensions between the U.S. and Iran are raising fears of another oil-driven price surge.
Phil Blancato, chief market strategist at Osaic, a wealth management firm, put it plainly: “Bonds only work as insurance in your portfolio when inflation is low.” In recent weeks, Osaic trimmed its fixed income allocation in its 60/40 portfolio from 40% down to 31%, and added a 6% commodities allocation — the first time the firm has done so in 15 years — citing bonds’ failure to adequately protect against stock market losses.
Investors noted that the relationship between stocks and bonds tends to move in the same direction when inflation climbs above roughly 2.7%, except during recessions when U.S. Treasuries can still act as a hedge. When stocks and bonds move together, investors lose one of the key protections against market downturns.
Blancato also noted that Osaic is moving away from passive fixed income positions toward more active investments in collateralized loan obligations, mortgage-backed securities, and high-yield debt, looking for stronger opportunities beyond standard Treasuries.
The Virginia Retirement System is taking a different approach — holding its fixed income allocation steady at 16% while increasing its exposure to credit, private real estate, and infrastructure. It is also exploring a wider policy leverage range to better withstand various inflation scenarios, according to deputy chief investment officer Chung Ma.
“We’re just not necessarily relying on the negative correlations that we have historically seen,” Ma said.
Data from Morningstar shows that while the total assets in fixed-income funds grew to $7.9 trillion as of May 31, those holdings now make up just 20.3% of portfolios — down from 25.7% in 2016 and off 4.8% from earlier in 2025. That marks the lowest month-end concentration since May 2008, as investors have moved money toward stocks and other asset classes.
Grant Johnsey, who leads market solutions at Northern Trust, warned that over time, bond returns can be eaten away by ongoing inflation, a weakening dollar, and an oversupply of bonds relative to demand. “Many investors are worried that one or more of these variables will play out in the coming years,” he said. “The issue with the bonds is that when you go out past five years, there are too many potential downside headwinds and not enough tailwinds behind it.”
The Federal Reserve has kept interest rates unchanged at a range of 3.50% to 3.75%. Meanwhile, yields on the 10-year Treasury are hovering near 4.6% and the 30-year is around 5.1%, signals that investors expect inflation to stick around and are demanding higher returns in exchange for tying up their money for longer.
In response to these pressures, some investors are gravitating toward assets that can better hold their value in an environment shaped by deglobalization, supply chain constraints, and rising defense spending.
Stephen Harvey, chief investment officer at Sagard Wealth Management in Toronto, said the global environment remains broadly “pro-growth, pro-inflation,” and that government fiscal policy is now playing a bigger role than central bank monetary policy in driving markets. Over the past year, Sagard Wealth has been steering clients away from most developed-market bonds and into what Harvey describes as a “preservation bucket” — a mix of commodities, gold, real estate, and infrastructure. In his words, “fixed income is the inflation loser.”
Jenn Bender, global chief investment strategist at State Street Investment Management, said real assets — tangible holdings valued for their physical properties — have been growing in appeal since the inflation surge that followed the COVID-19 pandemic. That appeal has strengthened further as the bond outlook has become murkier and stock markets appear stretched.
State Street has seen its biggest inflows this year go into commodities, with infrastructure and natural resources also drawing significant interest. Its flagship real asset strategy pulled in roughly 6% in net inflows in 2025, with that momentum carrying into this year.
Performance figures through May 31 back up the trend. Broad commodities returned 23.2%, global natural resources gained 19%, and U.S. real estate investment trusts returned 13.6%, according to State Street data — while U.S. Treasuries were essentially flat.
“The worry is that there is some downside risk in equities. Fixed income is not the place that people want to move their equity allocations over to,” Bender said. “Basically, real assets is kind of where you end up.”
