There are no major events on the econ calendar today and no compelling market movers in play so far this week--at least not for bonds. Stocks, on the other hand, have earnings season as well as yet another moment to reflect on whether valuations have growth frothy enough to justify a pull-back, temporary or otherwise. On such weeks, it's not uncommon to see a more conventional stock/bond relationship. How much weakness in stocks would it take to make a big impression on bonds? Let's see...
Actually, let's spoil the ending right out of the gate: the correlation between stock prices and bond yields has been fleeting, at best, in 2021, so it's not the sort of thing we should probably count on for bond market motivation, even though the past few days have had a more conventional relationship.
Here's what's happened in the few minutes after the previous chart was snapped:
What's up with that? Aren't stocks and bonds supposed to move together? The decade leading up to the financial crisis certainly made that case. The proportion wasn't always perfect, but the direction correlation was highly reliable.
These days, we're lucky to see even a few days of that correlation. The last notable instance was late March.
And most of the last 2 months have seen the opposite behavior.
Part of the issue here is that what most of us perceive as the normal correlation has largely been out the window after the financial crisis. Fed QE, after all, is a rising tide that lifts all boats (i.e. bond prices and stocks prices). Another part of the issue is the time frames in focus. The more we zoom in, the easier it is to see different examples of correlation. The more we zoom out, the more things start to line up.
Until we zoom out too far...
What's the point of all this? Yes, there are times when stocks tank and bond yields seem to drop as a result. There are times when stocks surge and bond yields seem to follow higher. And yes, there has been a good amount of correlation in the past few days. But the recent correlation is probably best seen as a byproduct of an absolutely empty calendar of consequential events for bonds combined with earnings season for stocks. Lastly, it would take a much bigger drop in stocks than we've yet seen in 2021 to get the bond market's attention.