Bond market signals caution as equities steadily rise
Correlation between stock returns and bond yields has declined considerably. See what this could mean for forward-looking returns.
May 17, 2019 | 1 minute read
Amid the volatility experienced in Q4 2018, the performance of equity and fixed income markets reflected rising investor risk aversion as equities sold off and Treasuries rallied.
So far in 2019, however, equity and fixed income performance tell a tale of diverging market views. While the S&P 500 has recovered all of its Q4 decline, bond markets reflect a more cautious outlook.
Prior to the May pullback in the equity markets, the S&P 500 returned 18.2% through April 30. Even with the May decline, the S&P 500 has returned 15.6% year to date amid generally positive employment data and a strong, yet cautious, consumer.1
Meanwhile, government bond yields have steadily declined in 2019 and this week nearly touched their March lows. In fact, the 3M-10Y Treasury yield curve briefly inverted this week for the second time since March as demand for safe-haven assets drove down the yield of the 10-year Treasury.2
Fresh tariffs and a breakdown of trade negotiations injected a fresh bout of volatility into the markets this month amid a year in which volatility has otherwise been low. As the U.S. economic expansion ages and policy uncertainty remains, equity and fixed income markets may reflect differing outlooks – yet all investors would be wise to prepare for periods of uncertainty and the volatility they often create.
Private credit has increasingly become the preferred source of financing for PE sponsors, with direct lending volume jumping 60% over last year’s level.
