Bonds are currently the topic on every investor's mind.

Even if you don't actively buy bonds, it's hard to ignore the wild swings in long-term U.S. Treasury yields. Such high interest rates are certainly tempting, but they also instill fear when considering their impact on the broader economy. The seemingly attractive interest income from bonds is not risk-free; you still face potential losses from bond price fluctuations. If you can't hold long-term bonds to maturity, your position could show unrealized losses. Compared to other asset classes, U.S. Treasuries have performed relatively weakly. For example, the Invesco QQQ Nasdaq ETF, heavily weighted in tech stocks, has delivered solid gains this year on the back of AI-themed stocks. So, is it wise to enter during this bond selloff? The Wall Street Journal interviewed six top global fund managers, including Bridgewater, and while their views differ, their insights may offer ideas for your asset allocation.

Assessing Market Trends

Rick Rieder, BlackRock's global chief investment officer of fixed income, told The Wall Street Journal that history is on the side of bond investors. "People realize that once the 10-year Treasury yield breaks above 5%, investing in bonds tends to be profitable," he said, adding that he has already begun adding some long-term bonds to his portfolio. Brian Whalen, TCW's chief investment officer of fixed income, offered several supporting arguments: the Iran war will eventually end; and a large amount of debt is concentrated in the hands of AI hyperscalers that are insensitive to interest rates. He believes bondholders' patience will ultimately be rewarded. Even more cautious investors, such as Pimco's chief investment officer Dan Ivascyn, see opportunities in high-yield bonds. Ivascyn noted that rising yields have already shown signs of a U.S. economic slowdown, but continued spending by AI companies, combined with homebuyers who have locked in low fixed mortgage rates, will likely prevent a recession. If you seize the current yield levels, "you can build a high-quality portfolio yielding 6% to 7% annually."

Can the AI Trade Continue?

Fund managers are bullish on the productivity gains from AI and believe these heavily financed tech companies have solid balance sheets. But that doesn't mean everyone is overweight large-cap tech stocks. Rob Arnott, founder of Syzygy Asset Management, said of big tech stocks: "My view is that we are in a bubble." He does not recommend heavily buying mainstream broad indices like the S&P 500, and instead sees opportunities in some small-cap stocks with high growth potential. There is another way to participate in the AI theme without buying stocks whose valuations are already stretched: investing in corporate bonds. Sonal Desai, Franklin Templeton's global chief investment officer of fixed income, is considering this strategy. She believes that corporate bonds from cloud giants like Meta and Amazon are more attractive than long-term U.S. Treasuries; the latter would suffer price shocks if the Federal Reserve continues to raise rates.

What to Buy If Bonds Still Make You Uneasy?

If you remain skeptical about government and corporate bonds, you can refer to Dalio's view. He believes that ever-expanding fiscal deficits will push yields higher and drag down the global economy. Dalio does not recommend buying bonds at current levels, but instead suggests allocating to assets that are insensitive to interest rates. He has publicly supported "non-government-issued currencies" as a hedge against fiat currency depreciation. In an article, he proposed allocating 10% to 15% of a portfolio to gold, plus a small amount of Bitcoin. Peter Schiff, founder of SchiffGold, recently said in an interview that he recommends a 10% to 20% allocation to physical precious metals. Jeffrey Gundlach, CEO of DoubleLine, said on a program that his portfolio holds about 20% each in physical gold and commodity ETFs. Although gold has fallen slightly year-to-date and recently weakened under pressure from rising U.S. Treasury yields, it remains a popular choice for investors uneasy about the economic environment. Major banks such as JPMorgan also view gold as an excellent portfolio diversification tool, with the bank predicting gold prices could surge to $6,300 per ounce by 2027.