MBS Day Ahead: Surprising Resilience in Bonds or Surprising Strength in Stocks?
Posted To: MBS Commentary
Conventional wisdom holds that stocks tend to do better when bonds do worse. The logic is simple. When investors feel more optimistic or more risk-tolerant, they're more likely to re-allocate some bond holdings into stocks. When they're fearful and risk-averse, bonds get the nod. The result is short-term correlation between stock prices and bond yields, and we've seen plenty of that as both sides of the market capture investor sentiment surrounding coronavirus numbers. But the important part of this thesis on conventional wisdom is the "SHORT-TERM " caveat. The longer we look back, the more we see stocks and bonds willing to diverge. The most obvious recent example had been a time frame that included the market volatility in March. In that context, bond yields have essentially…(read more)