Sustained negative performance in TLT over five- and ten-year horizons has driven its efficient portfolio weight toward zero, resulting in its exclusion from optimal bond–stock allocations, using this data.

At the same time, the stock–bond correlation has turned positive, eliminating TLT’s historical role as a diversifier and hedge against SPY.

Reflecting both dynamics, short interest in TLT has risen above 24% of float, signaling that institutional investors are increasingly positioned against long-duration bonds.

The Efficient Frontier framework evaluates how an investor allocates $100 between two assets, testing allocations from 100% in Asset A to 100% in Asset B and all incremental combinations in between.

For each allocation, excess return relative to the risk-free rate and standard deviation are calculated using historical data. The Sharpe ratio is then computed by dividing excess return by risk.

The optimal allocation is defined as the point at which the Sharpe ratio is maximized. Under long-term historical assumptions, stock–bond portfolios have typically converged on a 60% equity and 40% bond allocation.

When bonds are negatively correlated with equities, higher bond allocations are optimal because they reduce overall portfolio volatility more effectively.

Over the past decade, however, consistent equity outperformance has shifted the Efficient Frontier decisively toward stocks, using 5 years of data at a time. This outcome remains consistent across time horizons exceeding ten years.

TLT has generated essentially zero returns over the past eight years, while SPY has delivered a 16% annualized total return, making reallocations from equities into bonds return-negative.

Furthermore, the stock-bond correlation has turned positive, rendering the traditional diversification argument moot.

Investor positioning reflects this shift. Since July, TLT has declined 10% amid sustained short selling, and IEF has also seen rising short interest.

In contrast, short interest in SPY remained relatively flat throughout the second half of 2025.

While a regime shift similar to 2008–2014 could restore bonds’ relevance in portfolio construction, many investors remain heavily concentrated in equities using recent data.

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The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC (“S3 Partners”) to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks, and merits, as well as the legal, tax, accounting, and investment consequences, of such decisions.