Monday, October 1, 2012

Recommended Bond Allocation

Below we highlight the consensus strategist recommended bond allocation since 1997. At the moment, Wall Street strategists are collectively recommending a 30.5% weighting in bonds. Prior to the run-up in Treasuries during the financial crisis, the recommended bond weighting fluctuated from 15%-20%. As bond prices rallied, strategists followed them higher by increasing their recommended weighting. As shown in the chart, the recommended bond weighting peaked well after the long bond peaked in December 2008, and the weighting has been drifting lower throughout the current bull market in stocks.

Over the last few weeks, the recommended bond weighting has remained right around 30%. The long bond itself is currently trading in a range that it typically traded in during the '03-'07 stock market rally, but at 30%, the recommended weighting is about 10 percentage points higher than it was during that time. Have analysts become more conservative in general, or will the recommended weighting continue to fall as long as the market goes up?

click to enlarge

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