- Investors have been antsy about the state of the US bond market.
- Concerns over the safety of government bonds have jumped amid the trade war and a US debt downgrade.
- Bonds may no longer be the "shock absorbers" investors can rely on in times of volatility, KKR said.
It's been a wild few months for the bond market, and the roller coaster has some Wall Street titans casting doubt on the safe-haven status of US government bonds.
Jitters about the US debt market have been front and center after Moody's downgraded US debt on Friday, leaving America without a top-tier grade from a major ratings agency.
The move added to jitters about US growth and the ballooning deficit in recent weeks, with the tax bill moving through Congress causing anxiety among some investors.
Bond vigilantes — investors who sell bonds out of concern for the US fiscal outlook — have re-entered the chat in the last week, sparking another sell-off and a big spike in bond yields after throwing a fit over the trade war in April.
The benchmark 10-year US Treasury climbed past 4.5% on Monday, while the 30-year US Treasury briefly surpassed 5%.
As the bond market convulses in 2025, the takeaway for investors is simple and unnerving: don't count on ultra-safe government debt like Treasury bonds to shield you in times of trouble.
KKR said this week it believes bonds may no longer be seen as the portfolio buffers investors are used to thinking of them as.
The firm pointed to the increasing correlation between stocks and bonds this year, a historically unusual pattern. Stocks tend to move inversely to bond prices, as investors selling risk assets like equities will move towards safe havens like US Treasury bonds.
Typically, that means stock prices will rise as bond yields fall, and vice versa, though that pattern has broken down numerous time this year, KKR said.
"During risk off days, government bonds are no longer fulfilling their role as the 'shock-absorbers' in a traditional portfolio. As such, there is now an ongoing clear and present danger for global allocators who bought into the idea that when stocks sell off, bonds will always rally," KKR said.
Concerns are also spreading to other areas of the debt market.
JPMorgan CEO Jamie Dimon said he sees US credit as a "bad risk."
"I think there have been 15 years of pretty happy-go-lucky credit, a lot of new credit players, different covenants, different leverage ratios, the leverage on top of leverage, things like that," the banker said at JPMorgan's annual Investor Day event. "So, I think I would expect that credit would be worse than people think of in every recession."
The banking chief also pointed to the large share of US debt owned by foreign investors and how tariffs could impact their demand for US debt assets.
The comments add to growing list of concerns swirling around the idea of US exceptionalism, which says US assets will outperform because America is the premier destination for foreign capital.
While demand for US Treasurys remains solid overall, there are signs investors are starting to head for other areas in the financial markets for safety.
European-exposed ETFs, for instance, took in a record $19.4 billion of inflows in the first quarter, according to Invesco.
Meanwhile, gold is having a real moment in 2025. Global demand for the metal hit 1,206 tons last quarter, the highest demand level recorded for the first quarter since 2016, according to the World Gold Council.
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