Bonds now move in tandem with stocks

Investors who’ve tried to balance their holdings between stocks and bonds may be less protected from asset-price swings than they think.

Here’s why: bonds globally are becoming more volatile as the Federal Reserve considers raising interest rates for the first time since 2006. And the debt, traditionally thought of as a haven investment, has been moving in tandem with stocks during recent periods of turmoil. Take, for example, the recent bout of bond turmoil, which started at the end of April. In the period, the correlation between global bond and stock returns surged to about 30%, the most since the May 2013 taper tantrum, according to JPMorgan Chase & Co ana lyst s led by Nikolaos Panigirtzoglou.

That means that both asset classes posted losses, even though government bonds are often thought of as a hedge to stocks. So it’s been painful for those who are looking for reliable returns by diversifying their investments.

Indeed, higher bond yields may signal faster economic growth, better wages and a more stable global economy after years of uncertainty. But they also will translate into losses for investors who’ve grown more vulnerable than ever to rising borrowing costs. It’s going to be a rocky road ahead, even if central banks time any changes to their stimulus programmes perfectly.