Bonds lose their structural portfolio hedge status
The guest argued that the structural shift to a positive stock-bond correlation means traditional sovereign bonds no longer act as an effective hedge for equity portfolios.
The argument
The guest explained that because central banks have missed their inflation targets for several years, the correlation between stocks and bonds has turned positive. Consequently, investors will need to look to real assets, commodities, and gold to hedge their portfolios instead of relying on long-duration bonds.
The thesis, stress-tested
✓ What validates it
- ✓Stock-bond correlations remain positive during equity market drawdowns
- ✓Gold and commodities outperform long-term bonds during inflationary periods
▸ Risks discussed
- ▸A severe deflationary shock could temporarily restore the negative stock-bond correlation
Hear it yourself
"But the key thing to recognize is that the majority of central banks have missed their inflation targets for four or five years now. We're seeing in the stock bond correlation has now turned positive."
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