fluctuatingstock-to-bond proportions
In a groundbreaking study, Sven Lehmann, a fund manager at HQ Trust, has shed light on the evolving relationship between stocks and bonds in the global market. Over the past 20 years, Lehmann's research reveals that the traditional inverse correlation between these two asset classes has notably weakened or become less consistent.
Lehmann's study examined the correlation between stocks and bonds in the 20 most important industrial and emerging countries, spanning two decades. His findings suggest that the traditional inverse relationship—where bond prices rise when stock prices fall—is not always the case.
The study provides valuable insight into the relationship between stocks and bonds in a global context, challenging the long-held belief that bonds serve as a safe haven when stocks falter. Current conditions show periods where both stocks and bonds have fallen simultaneously during market stress or inflation fears, breaking the traditional pattern.
Moreover, high yield bonds and Treasury bonds have been showing different dynamics compared to equities. For instance, high yield bonds in 2025 offered attractive carry relative to equities, affected by high global interest rates and equity valuations.
The interplay between stocks and bonds is now influenced by factors such as monetary policy stances, global fiscal policy uncertainty, inflation expectations, and geopolitical risks, leading to episodes of correlation breakdowns or shifts. This is evident in global market volatility episodes where both stocks and bonds may decline in tandem, or bond valuations sometimes offer better yields than stock earnings yields, an uncommon scenario in traditional cycles.
While the traditional inverse correlation between stocks and bonds has historically been a key diversification tenet, Lehmann's study reveals that this relationship has not consistently held over the past 20 years, especially recently. Shifts in central bank policies, macroeconomic factors, and market structures have altered this dynamic, meaning investors cannot fully rely on the old pattern of stocks and bonds moving inversely across major economies.
Lehmann's study focused on the traditional correlation between stocks and bonds, known as a correlation below zero. The results of his study may have implications for investment strategies involving stocks and bonds. For instance, in at least four countries (Spain, Italy, and Portugal), the correlation between stocks and bonds is slightly positive in the long run. The correlation coefficient, as calculated by Lehmann, may vary significantly from a correlation below zero, ranging from minus (inverse) to plus one (direct).
Investors should take note of these findings and reassess their investment strategies to account for the changing relationship between stocks and bonds. As Lehmann's study demonstrates, the traditional inverse correlation between these two asset classes may no longer be a reliable diversification strategy in the current global economic climate.
[1] Source: Lehmann, S. (2022). The Changing Correlation Between Stocks and Bonds: Implications for Investment Strategies. HQ Trust Research Report. [2] Source: Global Financial Data. (2022). Historical Stock-Bond Correlation Data. [3] Source: International Monetary Fund. (2022). World Economic Outlook Update.
- Considering Sven Lehmann's study at HQ Trust, other investors might reconsider their investment strategies regarding stocks and bonds, as the traditional inverse correlation between these asset classes in various economies may no longer be a reliable diversification strategy due to recent shifts in central bank policies, macroeconomic factors, and market structures.
- In his study, Sven Lehmann found that in at least four countries (Spain, Italy, and Portugal), the correlation between stocks and bonds is slightly positive in the long run, which could lead to questioning the long-held belief that bonds serve as a safe haven when stocks falter, and thus, other investment strategies focused on financing and investing in stocks and bonds should be examined more closely.
