Bonds Have Never Been So Useless as a Hedge to Stocks Since 1999 By Bloomberg – Investing.com

Bonds Have Never Been So Useless as a Hedge to Stocks Since 1999 By Bloomberg – Investing.com

(Bloomberg) -- Bonds aren’t working as a safe haven like they used to.On a day when risk aversion swept across everything from stocks and commodities to crypto currencies, Treasuries barely budged. In fact, the and 10-year Treasury futures haven’t been so positively correlated since 1999, with the 60-day metric reaching 0.5 on Wednesday. In contrast, the average correlation over the past two decades was negative 0.3, meaning a decline in stocks was often accompanied by a rally in bonds.

The relationship flip signals that the role of Treasuries as a shock-absorber has been eroded as the fear of inflation becomes a common denominator for both stock and bond investors. If it persists, it would mark a sea change as strategies such as risk-parity and 60/40 are likely to become more volatile.“Long bonds as your hedge worked in a Goldilocks era” of stable growth and inflation, said Charlie McElligott, a cross-asset strategist at Nomura Securities. “But now, due to the pandemic response, that old dynamic simply no longer applies. Inflation is a volatility catalyst.”