Courtesy Everett Collection
Investors are complaining bonds haven’t protected them from this week’s stock-market selloff, and that’s recalling memories of the March madness when all markets simultaneously came under assault.
Padhraic Garvey, an analyst at ING, says Treasurys have not seen large rallies despite sharp declines in U.S. and European equities in the past few days and this troubling trend recalled the pandemic-driven selloff at the start of the year when market participants sold their most liquid assets to raise cash, driving both haven and risky assets lower.
See: Why are bonds failing to act like a safe-haven as stocks sell off ?
Like then, the softer tone on Wall Street has been linked to rising worries around the COVID-19 trajectory across the country.
“A simultaneous sell off in stocks and government bonds would bring painful memories of market dislocations in March of this year, when the first lockdowns were imposed,” said Garvey.
Indeed, the S&P 500
SPX,
is down over 6% this week, while the 10-year Treasury note yield
TMUBMUSD10Y,
has risen 1.9 basis points this week to 0.859%.
Typically, investors rely on bonds to act as portfolio ballast, gaining in value when risky assets came under pressure, but with yields so low, analysts have warned Treasurys may struggle to perform as advertised if stocks sold off, sparking a race among asset managers to find other investments that share similar haven characteristics.
“It’s been a challenging environment, for sure,” said Yung-Yu Ma, chief investment strategist for BMO Wealth Management, in an interview.
It’s why many have dived into cash throughout this year, at the risk of losing out on additional returns, according to Lindsay Bernum, global macro analyst for Smith Capital Investors.
At times, other haven assets like gold have also struggled this week, leaving investors bereft of places to hide out from market volatility.
On Wednesday, the S&P 500 fell more than 3% and both prices for the 10-year note and gold
GC00,
fell. The last time this happened was back in March 18.
But Garvey said it was too soon to “talk about a ‘dash for cash 2.0’ but the fear of a repeat is no doubt on investors’ minds.”
Rather, he surmised the unusual market gyrations this week was more likely related to investors positioning themselves ahead of the Nov. 3 presidential election to avoid being caught offside by a surprise result or the widely touted Democratic clean sweep of the White House and Congress.
