Daily price change: 2-year U.S. Treasury yield
Source: Federal Reserve Bank of St. Louis, as of January 27, 2022.
- Market movements this year have been violent as investors struggle to digest a new rate regime along with ramped up geopolitical tensions in eastern Europe.
- Fed Chair Powell’s press conference on Wednesday did nothing to quell the volatility as rates across the yield curve jumped, and stocks fell as he spoke.
- As this week’s chart shows, the 2-year U.S. Treasury yield saw its largest single day jump since March 2020 while the 10-year rose to pre-pandemic levels (December 2019).1
- Meanwhile, the S&P 500 is down -9.1% year to date and there have been very few places to hide in the market this year as core fixed income has returned -2.2%.1
- The decline across both parts of the 60/40 portfolio stands in contrast to much of the past decade, when bonds often balanced equity volatility. Recently, however, we’ve begun to see bonds and stocks move in unison as inflation concerns and rising interest rates weigh on portfolios. The increased correlation is in line with other historical periods of elevated inflation.
- Within an environment of higher inflation, increased volatility and correlations across equity and fixed income markets, investors may be wise in adopting an active approach to navigate today’s changing markets and seek alternative ways to generate returns and manage risk.