A Deep History of the Bond-Equity Relationship and Inflation
Quick take
June 28, 2022
Major stock sell-offs (defined as monthly returns below -2%) since September 2021 coincided with sell-offs in Treasurys. Looking deep into market history between 1971 and 1999 reveals many periods when bond and stock returns tended to move in the same direction. A striking example of this occurred during the period of stagflation from 1978 to 1982, a period characterized by higher inflation and slower and sometimes negative economic growth in the U.S., when large equity sell-offs often coincided with sell-offs in Treasurys.We invite you to use the interactive chart to highlight different time periods and see when bonds provided stronger (or weaker) diversification against losses in the equity market.
How to interact with this plot: Click and drag on the inflation sub-chart to highlight a time period. Select the equity-loss threshold at the bottom of the chart. Hover the mouse over the charts to see more details. This chart is updated daily.
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Has Inflation Affected the Bond-Equity Relationship?
A vigilant Fed bringing down market inflation expectations could help restore the role of bonds as diversifiers in MAC portfolios, tending to rally when equities sell off.
Fed Policy and the Specter of Stagflation
As U.S. inflation has surged and the stock and bond markets sold off sharply, investors are scrutinizing the Federal Reserve’s next rate-setting moves. We look at the medium term and how different scenarios could affect multi-asset-class portfolios.
1 Treasury return is computed using the 10-year constant-maturity Treasury yield, retrieved from the Federal Reserve Bank of St. Louis’s FRED database. Equity return is from the MSCI USA Index. U.S. realized inflation is the personal-consumption-expenditures price index, excluding food and energy, from the U.S. Bureau of Economic Analysis.
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