Since the US Federal Reserve has signaled an exit strategy, “taper” or reduce purchases, both “safe” bonds (US treasuries) and risky assets (stocks and high yield bonds), have been correcting in price. The chart below shows two periods in the last 6 years when treasury bond and stock prices have been highly correlated. The first was in early 2008 from March to July 10 year treasuries fell while stocks also fell. This also happened in the fall of 2010 when QE was announced, and both stocks and bond prices rose.

As this article suggests, the consistent message from a high correlation between stocks and bonds is that bonds rallied.

Our Volatility Control managers have held up very well in this sell off largely because of their ability to buy or sell short bonds.

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