For much of the past three decades, portfolio construction rested on a relatively simple division of labour. Equities provided growth while government bonds provided income, liquidity and protection when growth weakened. In a conventional recession, equity markets would fall, central banks would ease, bond yields would decline and duration would appreciate. The relationship was sufficiently reliable that it became embedded in strategic asset allocation models, capital markets assumptions and portfolio risk models.

The problem now is not that government bonds have c...