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While historically the return, volatility and correlation characteristics justified the inclusion of Sovereign Bonds (US Treasuries, European Central Bank Debt, etc) in Strategic Asset Allocation decisions of real money investors (such as Pension Funds), are they justified in today's investing environment?

With Sovereign Bonds offering zero or even negative expected returns, and offering very little diversification benefits (recently Sovereign Bonds offered almost no protection to Equity drawdowns) do they belong in a Strategic Asset Allocation? Yes, I never anticipated negative rates and I suppose they can get even lower and offer some potential for capital appreciation, I have a hard time believing there is much capital appreciation left. At the same time, they offer a negative yield and pose a high potential for capital depreciation should rates rise. Do these investment characteristics justify their inclusion in any Strategic Asset Allocation? What criteria should be used to include or exclude asset classes in such Strategic Asset Allocations?

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This discussion might be of use: Asset Allocation with near zero rates.

I have heard (at conferences) large, institutional investors say they are reconsidering their allocation to govys and/or IG because of ZIRP and NIRP. I don't know what criteria they use to make their strategic asset allocation decisions or whether they've implemented any changes.

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