Did anyone notice that U.S. federal debt crossed $40 trillion earlier this month? (1)
It’s a staggering number. But what really caught my attention wasn’t just the size of the debt. It was the reaction in the bond market.
For the first time in a long time, we’re hearing a phrase that had largely disappeared from the conversation: bond vigilantes.
That’s a term used to describe bond investors who push back against government fiscal policies they believe could lead to higher inflation, more borrowing, or higher interest rates. And lately, they’ve been making their voices heard. (2)
We’ve seen long-term Treasury yields move higher, while investors have also moved into assets such as gold and bitcoin. Gold has had a remarkable August, while bitcoin recently moved above $80,000 – that’s up more than 28% so far in August, with its biggest monthly gain since November 2024. (3) and (4)
So why does any of this matter to your portfolio? Because I believe we’re watching an evolution in how portfolios need to be constructed.
For decades, the traditional 60/40 portfolio -- 60% public equities and 40% bonds -- was considered the foundation of a diversified portfolio. When I entered this industry in 1994, that approach made a lot of sense. Stocks and bonds tended to behave differently, giving investors an important source of diversification.
But the investment landscape has changed.
In 2022, stocks and bonds fell together, and a traditional 60/40 portfolio suffered one of its worst years in decades. (5) More recently, we’ve also seen growing concerns about the concentration of equity returns, particularly around artificial intelligence, while rising government debt and fiscal pressures create new challenges for fixed income.
And the long-term numbers are worth watching. The Congressional Budget Office projects that federal debt held by the public will rise from roughly 101% of GDP this year to 175% by 2056. (6)
Now, I'm not suggesting we eliminate public stocks and bonds. Far from it.
But I do believe investors should think beyond the traditional 60/40 framework and consider other sources of diversification... including private equity, venture capital, private real estate, private credit, and hard assets.
Thirty-two years ago, many of these investments simply weren't readily available to most investors. Today, they are increasingly accessible.
And that's really my takeaway.
The bond vigilantes aren't just a story about what's happening in the bond market. They’re a reminder that the investment landscape is changing, and portfolio construction needs to evolve with it.
As we head into September, I’m looking forward to taking some time off and celebrating Labor Day with my family.
And for those of you who know me well, preseason NHL games begin later this month. I can already feel the cooler temperatures coming around the bend!
Enjoy your Labor Day weekend, and I’ll see you back here in late September.
(1) - https://www.dlacalle.com/en/u-s-debt-matters-but-the-euro-area-may-create-the-next-crisis/)
(2) - https://www.schwab.com/learn/story/bond-vigilantes-explained
(3) - https://stansberryresearch.com/dailywealth/golds-reversal-could-spark-a-double-digit-rally
(5) - https://www.fool.com/investing/2023/01/26/2022-was-the-worst-year-since-1937-for-this-invest/
(6) - https://www.apollo.com/content/dam/apolloaem/pdf/daily-spark/2026/aug/3/dailyspark-2026-08-03.pdf