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Years of Big U.S. Treasuries Holdings Are ‘Over’ for Swiss Fund

When it comes to calling the end of the decades-long bull run in bonds, Switzerland’s Pictet Wealth Management is putting its money where its mouth is, and cutting its allocation to U.S. Treasuries.

“Huge regime change” is how Christophe Donay, head of asset allocation and macro research at Pictet, describes what’s going on in the bond market, with yields surging. The old simple strategy of putting 60 percent in equities and 40 percent in Treasuries, which scored handsome returns for decades, won’t work any more, he said. “This story is over.”

A “reasonable allocation” in U.S. Treasuries now would be around 10 percent, Geneva-based Donay said in a Feb. 2 interview while visiting Hong Kong. Pictet Wealth Management says it oversees 195 billion Swiss francs ($210 billion).

While bonds were added to portfolios to balance the risk from investing in stocks, they didn’t just provide insurance, but offered great returns in their own right — thanks to inflation and yields trending lower since the early 1980s. Investing in Treasuries maturing in 10 years or longer gave average annual returns of 9.25 percent over the past four decades.

It was like getting paid for taking out car insurance, Donay said. Now, “you have to pay for buying the protection.” Longer-dated Treasuries have lost 3.2 percent so far this year, according to ICE BofAML’s U.S. Treasury index.

“Today, if you want returns, you need to invest in more risky bonds, emerging-market bonds or high-yield bonds,” said Donay. “It was crazy in a way. Now we are back to normal.”