Higher Bond Yields and The Fed Model: Implications for Future Stock-Bond Relative Returns
We explore the historical record of the Fed Model, measured as stock-bond real yield difference, to explain future stock-bond relative total returns.
As part of PGIM IAS’s ongoing research on strategic portfolio construction, we have explored the macro drivers, global linkages, and portfolio construction implications of stock-bond correlation in a series of papers dating back to 2021. With US stock-bond correlation having now turned positive, in this paper we discuss which elements of the current economic landscape could provide support for an extended period of positive stock-bond correlation, we review the portfolio construction implications of positive correlation, and we assess what current stock and bond valuations may mean for forward performance.
The IAS team conducts bespoke, quantitative client research that focuses on asset allocation and portfolio analysis.
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We explore the historical record of the Fed Model, measured as stock-bond real yield difference, to explain future stock-bond relative total returns.
Recessions are a feature of the economic & market landscape. Yet are revealed with a lag, which is why investors often rely on recession probability estimates.
A guide for CIOs to help them assess and interpret recession probability models, and explore several related issues that they should consider.