Higher global government bond yields have restored income as a core source of portfolio returns. In our strategic portfolio, the average yield is now 5.6%, up from 2.3% five years ago, creating richer income opportunities across fixed income markets.
Developed market government bond yields have reset structurally higher from the lows reached during the Covid-19 pandemic, reflecting the new macro regime we have described for several years. The AI buildout, the fastest capital spending cycle in history, is unfolding in a world shaped by supply scarcity, where constraints on energy, labor and geopolitics are driving a shift from efficiency to resilience. These pressures on real resources are keeping inflation more persistent and intensifying competition for finite pools of capital.
Long-term government bonds have been hit hardest by this reset, as policy rates have risen and investors have demanded more compensation for the risk of holding long-term government bonds. It’s pushed long-term government bond yields to multi-year highs across the globe.
Higher yields have created a broader and more durable income opportunity: our analysis of LSEG data shows over 80% of the global bond universe now yields above 4%. See the chart below. Yet the traditional ballast role that long-term government bonds have played, helping cushion risk asset selloffs, has also weakened. This environment makes selectivity even more important – the yield to maturity in bonds does not always provide the same compensation for risk.
