It happened during Coronavirus, but historically bonds have been counter cyclical. Some are worried that the paradigm has changed, and that bonds are no longer uncorrelated.
If this is true, it has large and significant ramifications on optimal portfolio construction.
> Some are worried that the paradigm has changed, and that bonds are no longer uncorrelated."
I argue that this is what has changed:
"Treasuries have also benefitted from the wider adoption of non-cash collateral since the crisis. Just over $1.8 trillion in cash was posted as collateral against loans and other transactions in 2008, with $1.3 trillion coming in the form of securities and other instruments, according to data provider IHS Markit. A decade later, those positions have inverted, with non-cash collateral balances standing at $1.6 trillion, compared with $870 billion for cash."[0]
and
“If an institution wishes to use [Treasury] assets for financing, to gain yield through lending them out or to meet their HQLA requirements, putting the securities into triparty is the most efficient way to achieve those goals”[0]
Since treasuries (and bonds in general through collateral transformation, emphisis on "non-cash collateral" above meaning not just treasuries) are being used to finance more risk asset purchases.
> The Nasdaq 100 ETF (QQQ) is up an astonishing 25.5% this year during a pandemic and that’s including a 29% peak-to-trough drawdown. But the long-term treasury ETF (TLT) is up 27.3%.
If this is true, it has large and significant ramifications on optimal portfolio construction.