The past couple of years have marked a sea-change for most asset allocators: since Covid, the correlation between long-dated US government bonds and US equity markets has stopped being negative. Instead of reducing risk for portfolios, long-dated US government bonds have recently been a drag on portfolio performance, even as equities struggled. This leaves investors facing a quandary: where can proper diversification be found?

Our contention is that Asian government bonds may be such a place, for a number of reasons.