by AdvisorAnalyst Editorial Staff
The questions investors ask in the field are often more revealing than the ones posed in formal surveys. For Liz Ann Sonders, Chief Investment Strategist at Schwab, and Collin Martin, Head of Fixed Income Strategy, the road show circuit has become a real-time pulse check on investor anxiety — and the themes emerging in 2025 are both familiar and newly urgent.
Speaking on Schwab's On Investing podcast, Sonders and Martin cover the fault lines dominating client conversations: geopolitical shock, fiscal sustainability, the Fed's leadership transition, the death of the classic 60/40, and what the data is — and isn't — telling us about where the economy is headed.
The Perennial Question: Deficits, Debt, and the Dollar
No subject generates more questions at client events than the U.S. fiscal picture. "The number one, two, or three question that I get at every single client event is something to do with the deficit and debt," Sonders says. The questions range from philosophical concern — "This can't possibly be sustainable, is it?" — to specific scenarios: dollar reserve currency loss, Chinese Treasury dumping, sovereign default.
Sonders pushes back on each framing with precision. The dollar, she argues, retains its global dominance not by inertia but by structural necessity. "There's simply no replacement for it," she says. "There will continue to be more diversification in terms of transactions that happen in global trade, more of them being done in local currency terms," but no alternative currency ecosystem has the depth, liquidity, or institutional infrastructure to displace it. On China's Treasury holdings, she notes the country "would do a lot of damage to themselves economically" by mass-liquidating positions — and has been quietly diversifying anyway.
Martin anchors the fixed income dimension. Foreign official holdings of U.S. Treasuries — primarily central banks — "has been around $4 trillion for about 13 years or so now, very steady," he notes, even as issuance volumes have grown dramatically. Private investors have absorbed the gap, but Martin acknowledges this introduces a different character of capital: "Private investors who, if that's just individuals across the globe, they may be more focused on actual valuations, on yield opportunities. That might be more temporary capital as opposed to a central bank who has a lot of reasons to hold Treasuries."
The honest answer, Martin admits, is that the statistical relationship between deficit levels and long-term Treasury yields simply hasn't materialized — yet. "We haven't found a relationship between our debt levels, our deficit levels, and what that means for long-term Treasury yields," he says. "Maybe there will be one. But without a relationship, without a statistical relationship over time, we don't know what that is." This isn't evasion; it's precision.
The Fed Transition: Threading a Difficult Needle
With Kevin Warsh's congressional confirmation hearings underway, the Fed's institutional future is front of mind for advisors. Martin offers important technical clarification: Warsh is not replacing Jay Powell as a governor — he is being considered for a different seat, with Powell's governor term extending to 2028. "He might be replacing him as the chair, but not as a voter," Martin notes.
The nomination raises three substantive tensions that Warsh will need to address publicly. First, he entered the process as an advocate for lower rates — a position aligned with the current administration — but now faces a rising inflation environment driven by oil prices. How he reconciles that will be closely watched. Second, despite his famous 2010 speech titled "An Ode to Independence," Warsh takes the stage in an environment saturated with Fed independence concerns. Third, his longstanding preference for a smaller Federal Reserve balance sheet collides with the political reality that shrinking it would push long-term yields higher — precisely what the administration wants to avoid. "It's going to be interesting to see how he kind of threads that needle," Martin says.
The 60/40: Not Dead, But Definitively Changed
The stocks-bonds relationship — the mechanical backbone of the classic balanced portfolio — has shifted structurally, and both strategists were unambiguous about it. Sonders frames the debate in terms of two secular regimes. The "Great Moderation" era, roughly from the mid-1990s through 2022, was characterized by low inflation volatility, globalization, and policy predictability. In that environment, bond yields moved primarily on growth signals, not inflation signals — and that is precisely what made classic 60/40 work. Higher yields meant stronger growth expectations, which was broadly equity-supportive, while bonds fell in price. The inverse correlation provided the ballast.
"We've definitively exited the so-called Great Moderation Era," Sonders says. The prior 30-year period — the mid-1960s to mid-1990s — was the opposite: inflation, not growth, drove yields. "Bond yields and stock prices moved in the opposite direction, which means bond yields and bond prices moved in the same direction. So it meant it was not as simple a backdrop for diversification." The current regime, she argues, more closely resembles that earlier temperamental era — not identical, but structurally distinct from what the 60/40 was optimized for.
Martin reinforces the case for bonds nonetheless, grounding the argument in income mathematics. "If you buy a bond at par, and you hold it for the duration of its maturity, five or 10 years, and over that time frame, if yields move up and down, its price can move up and down, but then it matures back at its par value, your return is really just the income earned over time." The short-term correlation disruptions that triggered "diversification is dead" headlines earlier in the war — when both bonds and equities fell — are exactly the kind of noise that long-horizon bond investors should learn to filter. "You hold them for income. You hold them for capital preservation, if you're focusing on very high-quality bonds."
What the Data Is — and Isn't — Telling Us
The forward data picture requires careful interpretation. The March PCE report, the Fed's preferred inflation gauge, is expected to show core inflation rising to 3.2% year-over-year from 3.0% in February — moving in the wrong direction relative to the Fed's 2% target and reinforcing the case for rates on hold for several meetings.
On the labor market, both strategists made a point that deserves wider circulation: non-farm payrolls are a deeply lagging, heavily revised indicator that tends to mislead at economic turning points. "Don't react to any initial read on payrolls," Sonders warns. "You get subsequent revisions for two months, and you get annual benchmark revisions." She points to late 2007 as an instructive case — initial payroll readings looked healthy even as the recession was beginning. Only post-revision did the picture clarify. Martin adds that the Fed itself is now weighting the unemployment rate over raw payroll gains for precisely this reason — plus the complicating factor of reduced immigration-driven labor supply.
Beyond the Fed, Sonders flags the University of Michigan consumer sentiment data and its inflation expectations subcomponents as particularly important — not because of the headline reading, which "has been kind of plumbing historic lows," but because unanchored long-run inflation expectations represent one of the few scenarios that could force the Fed's hand despite its current patience.
5 Key Takeaways for Advisors and Investors
1. The dollar thesis remains intact — but the framing matters.
The dollar will not be displaced as the world's reserve currency in any near or medium-term scenario. Gradual diversification of global trade settlement is real but not disruptive. Clients raising this concern can be reassured with structural specificity, not platitudes.
2. Deficits don't have a reliable yield signal — yet.
The absence of a statistical relationship between U.S. debt levels and long-term Treasury yields is not a cop-out; it is the honest answer. Advisors should resist yield forecasts built primarily on deficit narratives until that relationship establishes itself empirically.
3. The Fed's next chapter is more complicated than a rate cut.
Warsh's nomination is not a simple "dovish pivot" signal. His stated preferences on balance sheet reduction, Fed independence, and current inflation dynamics are in genuine tension with each other and with administration priorities. Treat the hearings as a source of signal, not confirmation.
4. The 60/40 is not dead, but its risk profile has changed.
The diversification properties of bonds are regime-dependent, not permanent. In inflation-driven rate environments, bonds and equities can correlate positively, undermining the classic hedge. Advisors should extend the toolkit — other asset classes, income strategies, alternatives — rather than abandon bonds outright.
5. Stop trading the first payroll print.
The first Friday headline number is among the least reliable single data points in the macro calendar. For advisors managing client conversations around monthly jobs reports, the message is clear: wait for revisions, weight the unemployment rate, and note that inflection points are almost always visible only in retrospect.
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Footnote:
1 Liz Ann Sonders, Collin Martin. "Debt, Deficits & the Fed’s Next Move." Charles Schwab & Company, 24 Apr. 2026.
