Yield differentials across asset classes have narrowed to historic lows, reshaping portfolio risk and opportunity. In this context, diversifying allocations and locking in higher fixed income yields offers a more compelling risk-reward for multi-asset investors.
Past performance is not a guarantee of future returns.
Source: MacroBond. As of 30 September 2025.
Note: All Equity REITS data are updated as of 30 June 2025.
Notable Narrowing in Cross-Asset Yields
Market yields have converged remarkably over the last 20 years, but particularly since COVID. As you can see in the chart, yields on Corporate Bonds, Government Bonds, Public Equities and REITS are within a historic tight range. Which represents current mispricing and has important implications for asset allocations.
- In Fixed Income, yield levels have risen dramatically due to higher interest rates, along with a rise in term premium as bond investors demanding greater compensation for increased inflation volatility, policy uncertainty and risks.
- Meanwhile in Equities, the forward earnings yield has been declining, largely due to sustained valuation expansion - in spite of the higher bond yields. This compression in equity-risk premium relative to history offers a less attractive risk/reward set-up for investors.
- Strategically, now represents an opportunity to diversify and lock-in higher fixed income yields.
- Tactically, we are most positive on European government and investment grade corporate bonds whilst remaining cautious on longer-dated bonds where risks regarding fiscal deficit and debt servicing concerns may persist.
We believe the current environment is significantly more favorable for building a balanced and diversified multi-asset portfolio.
