Safe havens no longer safe, quants fear

Equity-debt correlation breakdown and negative bond yields make investors nervous

Bonds traditionally serve as a safe haven in equity market routs. But investors are questioning whether they will continue to provide the same protection in a period of ultra-low rates and squeezed bond yields.

The US stock-bond correlation was strongly negative in the first leg of March’s sell-off, before flipping on March 9. From the stock market peak on February 21 until March 9 the S&P 500 index fell 17.6% while the Ice US Treasury 7–10 Year Bond index climbed 7.4%.

From the March 9 close