This decade’s bull market in the global stock/bond ratio has been unusual, particularly the continued decline in government bond yields as the economic expansion has matured. Looking ahead, the next bear market/recession is also likely to be unique.
If government bonds produce mediocre or even no returns during the next recession, due to a starting point of offering little to no income, then it will be challenging for investors to protect, never mind grow, their capital base. Instead, we have outlined a number of alternative opportunities to consider. One such example for those with the flexibility to execute paired trades was: long spread product and short equities. Such a position has historically produce good returns during bear markets in the global stock/bond ratio, yet holds up well during the initial recovery phase (it only performs poorly as the recovery progresses).