Making Peace with Bonds: Your Portfolio's Unsung Shock Absorber
Because "I don't understand bonds" is not a portfolio strategy
Many investors ignore bonds entirely and don’t even bother understanding how they work. Yet bonds are arguably the most important asset in the market — the one that moves markets and the broader economy more than anything else.
Predicting bond behavior is arguably one of the hardest tasks for any investor, right alongside predicting currency movements (and investing in bonds is implicitly investing in currencies: buying bonds from a country yielding 4% means nothing if that country’s currency drops 8%). Predicting bonds requires forecasting macroeconomic factors, country-specific political dynamics, and geopolitical conditions. In my humble opinion, almost no one can say with certainty where a country’s interest rates are headed.
That said, a well-diversified portfolio should include bonds that protect you in specific scenarios and economic cycles — think an extended recession, or a cushion against a black-swan crash.
In my own portfolio, given the current environment where equities may be quite overheated, I hold a substantial position in non-equity assets (gold, bonds, commodities, cash…). My current bond position stands at a meaningful 30% of the portfolio.
Since I consider it extremely difficult to predict where interest rates and currencies are heading, my entire bond exposure is through a single ETF that tracks the Bloomberg Aggregate Bond Index. This index is composed primarily of high-quality government, corporate, and mortgage-backed bonds, diversified across economic sectors, geographies, and maturities. That range of durations and issuers captures the overall behavior of safe fixed income, reduces risk, and provides a clear picture of how global (or regional) debt markets move.
iShares Core Global Aggregate Bond UCITS ETF
The ETF I use for bond exposure is BlackRock’s AGAC ETF: the iShares Core Global Aggregate Bond UCITS ETF:
The ETF is diversified across government and corporate bonds from multiple countries and maturities, with a heavy tilt toward U.S. bonds and an average duration of around 6–7 years.
What Return Can We Expect?
Bonds offer stability, security, and lower volatility in a portfolio — naturally, at the cost of lower returns.
The challenge is that when you buy this type of ETF, estimating your expected medium-term return is genuinely tricky, at least for retail investors like most of us. Not because estimating bond returns is inherently difficult — quite the opposite. When you buy a bond, you know upfront (assuming no default) exactly what return you’ll get. That’s very different from equities, where you’re always estimating. The difficulty here is that the ETF holds an enormous number of bonds.
On BlackRock’s own website you can download a CSV file with all the ETF’s holdings — and you’ll find roughly 20,000 different bonds.
To calculate the exact yield of all the bonds in the ETF, you’d need the current yield of each one (at today’s market price, not just the coupon), then compute a weighted average based on each bond’s weight in the portfolio. Large institutions like BlackRock can do this in real time. For retail investors, it’s a Herculean task.
Estimating the Approximate Yield
Since calculating the exact yield is beyond reach for most of us, we need a practical approximation.
As shown in the screenshots above, BlackRock provides both the country weight breakdown and the duration weight breakdown on their website.
The portfolio includes both government and corporate bonds, each with different yields.
For our approximation, we’ll assume all bonds are government bonds. The method: cross the country weight table with the duration weight table to build a country × duration weight matrix. Once that’s done, we need the current yield for each country-duration pair — which you can look up on TradingView (e.g., US30Y for the 30-year U.S. Treasury, CN20Y for China’s 20-year bond, and so on).
Since there are 96 country-duration pairs (considering only the ETF’s most significant country weights), manually retrieving each yield is tedious — especially since yields shift with bond prices daily. So I asked Gemini, Google’s AI, to populate the table with the relevant yields for each country-duration pair.
In the table above, each cell shows the ETF weight for that country-duration pair, with the current yield in parentheses. For example, 1.16% of the ETF consists of U.S. bonds with a 0–1 year duration, currently yielding around 3.78%.
With this table, the only remaining step is a weighted average of all yields (weighted by each bond’s share in the ETF).
I asked Gemini to run this calculation. The result: the weighted average yield across all these bonds is approximately 3.61%.
Keep in mind: we assumed all bonds are government bonds and used the sovereign yield for each country-duration pair. Corporate bonds carry an additional yield premium (reflecting their extra risk). So the ETF’s actual real-world yield likely hovers around 4%.
Yield to Worst
Even though we did this exercise to estimate an approximate yield and better understand what we’re actually invested in, ETF providers typically publish metrics that save us from having to do the math manually.
If you check the fact sheet for the AGAC ETF, updated to April 2026, you’ll find metrics that align closely with our estimates:
Average Weighted Maturity: 8.10 yrs
Effective Duration: 6.15 yrs
Yield to Worst: 3.83%
Number of Holdings: 19,976
Yield to Worst (YTW) — roughly “return in the worst-case scenario” — is a key fixed income metric. It represents the minimum annualized return you can expect from a bond or bond portfolio (like this ETF), assuming no default by the issuer.
Conclusion
I hope this post has helped shed some light on an asset class that many investors overlook — yet one that, in my view, deserves a place in any thoughtful portfolio.
As always, this is not investment advice. Everyone should study and design their own portfolio based on their individual risk profile.
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