Investment Strategies

Are Bonds Your New Best Friend?

Stock-bond correlations could be impacted in a late-cycle economic environment. PIMCO’s CIO Asset Allocation and Real Return Mihir Worah offers more details.

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Mihir Worah: Given that we think we're late in the cycle, a lot of investors have questions about the stock-bond correlation. Will it be negative like it's been for the last 10 or 15 years, and will bonds hedge downturns in the stock market? And the answer is it depends.

Late in the cycle, if either inflation or a hawkish fed is a fear, bonds stop hedging downturns in the stock market. In February 2018, when volatility in the stock market was driven by fears of inflation, bonds didn't really help you. We saw this in October as well, when the volatility in the stock market started around fears of a hawkish fed.

However, through Q4 of 2018, when we saw 20 percent decline in the stock market, bonds were your best friend; as stock prices went down, bond yields fell too, and this is the kind of behavior we expect.


Past performance is not a guarantee or a reliable indicator of future results.

All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Equities may decline in value due to both real and perceived general market, economic and industry conditions.

Diversification does not ensure against loss.

Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.


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