Source: Bloomberg
Author: Liz Capo McCormick, Ye XIE
Gregg Abella, the fund manager of New Jersey, did not expect that he would receive so many customer calls in the week just after the week."Suddenly, everyone is asking us: Do you think it is a good time to increase holding bonds now?"
This can be said to have been confirmed for Abella.In his own words, he has "has been supporting bonds and wider asset diversification for many years."However, for a long time, this proposal is obviously unpopular.Until the stock market began to fall this month.Soon, the demand for bond security attributes soared, and the earnings of 10 -year US debt yields once touched the minimum level since mid -2023.
This wave of rise surprised many Wall Streets.The long -standing relationship between stocks and bonds has been questioned in recent years.Especially in 2022, this correlation completely collapsed, because when the stock market fell, bonds failed to provide any protection at all.(In fact, US Treasury bonds hit the biggest decline in that year).
However, the selling at that time was caused by the outbreak of inflation and the Federal Reserve's interest rate hikes to suppress inflation, and this time the decline in the stock market was largely caused by the concerns of the economic slide into recession.Therefore, the expectations of interest rate cuts are heating rapidly, and bonds perform very well in this environment.
"The reason for investing bonds is finally clearly visible," Abella said. Its company Investment Partners Asset Management manages approximately $ 250 million in assets, including assets managed for rich American and non -profit organizations.
TheS & P 500 index fell about 6%in the three trading days of August, and the US bond market rose nearly 2%.This makes investors with 60%of the shares and 40%of bonds win the investors with only stocks.
As the stock market has stabilized in the past few days, bonds will eventually erase most of the increase, but a wider point is still established, that is, fixed income played hedging when the market chaos was chaotic.
"We have been purchasing government bonds," said George Curtis, a investment group manager of Twentyfour Asset Management.Curtis has actually begun to increase holdings of US debt a few months ago. It is because they now provide higher yields, but also because he expects that with inflation, old stock debt relationships will return."This is a hedge," he said.
Reversal again
There is another way to see that the traditional negative relationship between these two types of asset categories returns, at least at present.
The one -month correlation coefficient between thestock and bonds reached the highest negative value since the regional bank crisis last year.Reading is 1 indicating that the two assets are synchronized, and the negative 1 indicates that they are changing in the opposite direction.One year ago, the index exceeded 0.8 since 1996, indicating that bonds are almost useless as the compressor as the investment portfolio.
As the Federal Reserve started to raise interest rates in March 2022, both the stock and bond market plummeted, and the relationship between the two had reversed.The so -called 60/40 investment portfolio fell 17%of the year, setting the worst performance since the 2008 global financial crisis.
Now the situation is back to the benefit of bonds. Inflation is more controllable and focusing on the focus of the potential US economy. At the same time, the yield is still much higher than the average level of five years.
In the next week, bonds will face a lot of risks.In July, producers and consumer price data will be released, and any signs of any signs of revealing inflation may promote the rebound of yields.The yield rate had begun to rise slightly last Thursday. At that time, the unexpected number of unemployed relief people announced at the time declined, which weakened the signs of weakening the labor market.
Although the bond market is exciting today, there are still many people -such as Bill Eigen -cautious attitude towards returning to the market.
EIGEN manages a Morgan Chase strategic income and opportunity fund of $ 10 billion. In the past few years, the bank holds more than half of the cash, mainly invested in the currency market fund.When the short -term government bond yield just exceeded 5%, it was at least one percentage point higher than the long -term national bond yield. EIGEN did not believe that inflation was really mild enough, and did not believe that the economy was weak enough to promote the Fed's relaxation measures.
"The interest rate cut will be small and gradual," he said."The biggest problem facing bonds as hedge tools is that the inflation environment still exists."