A sharp selloff in government bonds is challenging one of the foundational principles of modern investing: the belief that high-quality sovereign debt acts as a reliable hedge during equity market downturns. Instead of cushioning portfolios amid rising geopolitical tensions and market volatility linked to the Iran war, long-dated U.S. Treasuries have come under sustained pressure as investors demand higher compensation for inflation risks, stronger economic growth and expanding fiscal deficits.
The yield on the benchmark 30-year U.S. Treasury bond climbed well above the 5% mark this month before attracting some buying interest, highlighting the extent of investor concern around long-term debt. According to Reuters, the relationship between stocks and bonds has also shifted sharply, with the 60-day correlation between the S&P 500 and Treasury returns reaching its highest level in more than two decades. This means bonds are increasingly moving in the same direction as equities rather than offsetting market losses.
