With investors skittish about deflation and inflation, Barclays Wealth is recommending a portfolio that is overweight in risk assets such as equities and high-yield credit, as well as long dated bonds, while remaining underweight in cash and investment-grade credit.

For this “barbell” approach to work, both stocks and bonds have to face relatively limited downside, according to Kevin Gardiner, head of global investment strategy for Barclays. “If this weren’t the case, what we gained at one end might be given back at the other,” he said in a statement. He added that the “reduced likelihood of a hike in official interest rates on both sides of the Atlantic offers a degree of support to bond prices,” which means that a major sell-off appears to be unlikely with such a steep curve. 

Barclays additionally recommends a small overweight in real estate as part of the opportunistic side of the barbell portfolio strategy. The firm notes that U.S. real estate is one of the only asset classes that didn’t at least partially rebound in 2009 after the major drop in 2008.

Barclays also recommends high-quality long-dated government bonds as a way of insuring portfolios against deflation risk. Although yields on 10-year U.S. Treasury have fallen significantly, Brian Grossman, fixed income strategist for the firm, expects the gulf between 30-year yields and 10-year yields to narrow. He said there is opportunity here “so long as the spread is greater than 1.5 standard deviations above its average over 20 years, or 80 basis points to buy the 30-year and sell the 10-year U.S. Treasury—thus being net long spread compression.”