Stock Yields vs. Bond Yields: Correlation and Volatility

OK, this really has nothing to do with options. Actually, it’s about stock yields and bond yields. But it is also about volatility and correlation.

This article by Mark Hulbert is a little over a month old, but it’s still well worth reading. Here’s the premise. Prior to 1958, stock yields were always higher than bond yields. But in 1958, things flipped with stock yields falling below bond yields. It’s been that way ever since, till 2008.

Here’s the part that struck me. Cliff Asness “found that — below the surface — stock and bond yields have always been strongly positively correlated. The reason that this strong correlation was hidden … is that investors’ expectations have changed of the relative volatility of stocks and bonds.”

Read Hulbert’s entire article. I’ve known Mark for over 20 years, and he’s as good and honest as you get in this business. I buy research from him. And you’d be well served by regularly reading Mark’s columns, as he’s pretty good at verifying guru claims.