Chart of the week

Rate volatility returns in a big way, joining stocks

Short rates saw their largest jump in more than year. Our chart focuses on elevated rate volatility this year as equity markets also remain choppy.

January 28, 2022 | 2 minute read

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.

  • Bloomberg Finance, L.P., as of January 27, 2022. Core fixed income represented by the Bloomberg U.S. Aggregate Index.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Search our site