Despite a year of numerous challenges, the global economy has been resilient and valuations across major asset classes remain elevated. Against this backdrop, some economic signals are now indicating potential softness, which could challenge these stretched valuations.
Government bonds have traditionally been fundamental to providing portfolios with defensive ballast and diversification. However, with developed market government borrowing at record highs and showing little sign of abating, they may no longer always be the optimal choice for defence. Other areas of the bond market could potentially enhance a portfolio’s defensive characteristics.
A flexible investment approach can enable investors to diversify exposure dynamically across regions, sectors, and currencies, introducing less traditional and contrarian sources of defence and return. For example, emerging market debt has proven to be an effective diversifier during periods of market stress during 2025.
In an environment where volatility is likely to be elevated and the outlook somewhat uncertain, the ability to quickly and effectively adapt positioning can help strengthen defensive capabilities and maximise potential opportunities. This is the core of a dynamic global bond approach, with income, capital preservation, diversification and capital appreciation balanced.
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This insight is part of our broader analysis on how today’s global shifts are impacting investment opportunities – a dynamic we call The Great Global Restructuring.
