The chart below shows the rolling six-month correlation between the daily closing prices of the S&P 500 and the US Long Bond Future going back to 2000. As you can see in the chart, there has been a major shift in the relationship between the two asset classes in recent months. Last fall at this time, the rolling six-month correlation between the two was inversely correlated at -0.71. This implied that when equities rallied, bonds declined and vice versa. Since then, though, the correlation coefficient between the two asset classes has risen to +0.60, indicating that the two have been trading nearly in lockstep with each other. This is the most positive correlation between the two since January 2007, and only the fifth period since 2000 that the two have been this positively correlated.
While extended periods where stocks and bonds have traded in similar directions have been rare since the start of 2000, from a longer-term perspective, the current level of correlation is a lot more common. The chart below shows the same correlation as above, but it goes all the way back to 1980 rather than 2000. As shown in this chart, periods where there was a high level of correlation between the two asset classes were a lot more common from 1980 to 2000. In fact, whereas the average rolling correlation between the S&P 500 and the US Long Bond Future has been -0.28 since the start of 2000, from 1980 to 2000 the average was +0.34.
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