Fixed income markets offset equity volatility
Historically, fixed income and equity performance moved in different directions. However, this relationship broke down in 2022 as the Fed hiked rates quickly.
The correlation between bond and equity markets has returned to more typical negative territory, indicating fixed income markets have regained their traditional role as an offset to equity volatility.
Fixed income once again offers an attractive level of return with rates at more normal levels. The chance of a return to a zero interest rate policy seems remote.
The rolling 52-week correlation between intermediate Treasuries and equities has moved back toward its typically negative range, reinforcing fixed income’s ability to act as a stabilizing force during periods of equity market stress.