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.
For the last 20y, the correlation between stock and bond returns has been negative, enabling CIOs to increase stock allocations, with bonds acting as a hedge, while still satisfying a given risk budget. However, stock-bond correlation is not immutable. The correlation was persistently positive from the late-1960s until the late-1990s, after having been negative in the 15y before that (Figure 1). A shift to positive stock-bond correlation affects the tradeoff between portfolio expected return and risk, likely altering a CIO’s asset allocation decision. What could lead to such a shift in stock-bond correlation?
The IAS team conducts bespoke, quantitative client research that focuses on asset allocation and portfolio analysis.
Erfahren Sie mehr
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.