As Treasury yields climb and assets geared to the recovery race ahead, the Asset Allocation Committee asks, Will the economy overheat, and should investors rebalance?

The first quarter of 2021 brought outperformance from commodities and from small-cap, value and cyclical stocks, a sell-off in Treasuries, and concerns about inflation pressures. The Asset Allocation Committee (“AAC” or “Committee”) does not believe the economy will overheat and push bond yields to levels that force central banks to stifle the recovery—although it is watching the economic data closely. While continuing to favor early-cycle, reflationary positioning, the Committee thinks that markets have moved enough to justify some rebalancing of last quarter’s views.

The Rapid Rise in Nominal Treasury Yields Has Not Tightened Overall Financial Conditions

The Rapid Rise in Nominal Treasury Yields Has Not Tightened Overall Financial Conditions

Source: Bloomberg. Data as of March 30, 2021. For illustrative purposes only. Part performance is no guarantee of future results.


  • The AAC maintained its overweight views on U.S. small caps, non-U.S. developed markets, and emerging markets, due to their higher gearing to global economic recovery.
  • The AAC maintained its underweight view on U.S. large caps, a sector currently dominated by secular growth stocks that have led during the coronavirus crisis: it has a more positive view on large-cap value and cyclical stocks.
  • At the margins, investors may consider some rebalancing, as small-cap and value stocks have rallied substantially and long-duration growth stocks no longer appear as risky as they did before the recent run up in Treasury yields.

Fixed Income

  • The AAC upgraded its view on investment grade fixed income to neutral, as an upgrade for what we view as oversold Treasuries outweighs concerns around tighter spreads in high grade credit; higher yields have also opened up some opportunities in longer-duration corporate bonds.
  • The AAC maintained its overweight views on high yield, as default forecasts have declined and the recent run up in Treasury yields has created value in higher quality issuers without affecting credit spreads.

Real and Alternative Assets

  • The AAC maintained its overweight view on commodities, given reflationary forces.
  • The AAC maintained its underweight view on hedged strategies in general, but noted growing opportunities in merger event-driven, distressed and insurance-linked strategies.
  • The AAC maintained its overweight view on private markets, with an eye to emerging opportunities in private equity secondaries and private debt.

Market Views: Based on 12-Month Outlook for Each Asset Class


As of 2Q 2021. Views shown reflect near-term tactical asset allocation views and are based on a hypothetical reference portfolio. Nothing herein constitutes a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. See disclosures at the end of this publication, which include additional information regarding the Asset Allocation Committee and the views expressed.

About the Asset Allocation Committee

Neuberger Berman’s Asset Allocation Committee meets every quarter to poll its members on their outlook for the next 12 months on each of the asset classes noted and, through debate and discussion, to refine our market outlook. The panel covers the gamut of investments and markets, bringing together diverse industry knowledge, with an average of 26 years of experience.