KKR: The effectiveness of government bonds as a "shock absorber" in investment portfolios is gradually diminishing, and there is a risk of structural weakening of the US dollar.

Henry McVey, global head of macro and asset allocation at alternative asset management firm KKR, stated in a research report that the expansion of fiscal deficits and persistent inflation suggest that bonds do not always rise when stocks are sold off, breaking the traditional relationship between the two assets. On days of risk aversion, government bonds no longer serve as a "shock absorber" in traditional investment portfolios. According to KKR's data, diversification will be challenging for equity investors, as the US stock market is twice the size of the combined markets of Europe, Japan, and India. However, in the bond market, there is more room for investors to allocate to non-US assets, as the correlation between US treasuries and other global fixed income assets is decreasing. KKR also believes that there is a risk of structural weakness in the US dollar as President Trump seeks to reshape global trade dynamics.