The global bear market is wreaking havoc on financial assets and shows few signs of letting up. Notably, government and corporate bonds are experiencing significant losses. According to WealthManagment.com, indexes of seven-to-10-year US Treasuries and investment-grade corporate debt have lost about 10 percent and 13 percent this year.
Since the late 1990s, stocks and bonds have been negatively correlated. In other words, if stocks suffered a loss, bonds tended to go up. That is currently not the case in today's market.
Industry experts note that "it is highly unusual for both fixed income and equities to perform so terribly simultaneously." Inflation plays a significant role in the global bear market, accelerating more than most people expected. Inflation has flipped the correlation between fixed income and equities in the same direction. High and rising inflation and low and falling growth are toxic for bonds and equities when their starting valuations are so high.
Central bankers realize more needs to be done as inflation eats into real growth. This explains why the Fed raised rates 75 basis points last week and the Swiss National Bank lifted rates 50 basis points.
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