On social media platform X, Jeff Weniger, Chief Investment Strategist at Corgi Invest, noted that through the 100 trading days ending November 10, the S&P 500 Index and 30-year US Treasuries rose and fell together on 62 days.
This data indicates that the hedging effectiveness between US equities and long-dated bonds has weakened substantially, even though investors have long relied on these two asset classes to cushion portfolio volatility.
Data shows that the co-movement indicator between the S&P 500 Index and 30-year US Treasuries recently reached about 70% at one point, before falling back to 62%.
The metric tracks the proportion of the past 100 trading days in which the two assets rose or fell at the same time. Historical data going back to 1978 shows this relationship has changed significantly over time.
The indicator dropped to just over 20% around 2011 and stayed mostly between 30% and 40% for much of the mid-2010s, at one point dipping into the mid-20s. For most of the period from 2017 to 2019, the gauge was roughly between 35% and 55%; in earlier decades, there were also periods when stocks and bonds frequently moved in the same direction.
Weniger said the current pattern is similar to the 1980s and 1990s, when investors experienced extended periods of stocks and bonds rising or falling together.
In practice, when stocks and long-term Treasuries fall at the same time, bonds provide less of a hedge against equity losses, reducing the benefits of diversification.
It is worth noting that the safe-haven function of US Treasuries has recently made a phased return. In early November, US technology stocks came under selling pressure, and safe-haven funds accelerated into the bond market, pushing Treasury yields lower.
But the foundation for this round of safe-haven buying is not solid: investors are highly sensitive to the rate hike path, and the market now broadly expects a Federal Reserve rate hike in December to be almost a certainty; after October CPI came in above expectations across the board, Treasury yields moved higher accordingly.
Industry insiders believe inflation remains the core variable determining the direction of US Treasury yields, and US fiscal expansion will continue to disturb the market over the medium and long term.
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