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Fixed Income Funds with Positive Correlation to Stocks

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Oct 17, 2011 6:09 am

Have you noticed that there are many bond funds that move in the same direction that the stock markets? I mean, like Templeglo Global Bond Fund, Putnam US Government Income Fund and MFS Emerging Market Debt Fund: If the stock market goes up, this funds follow, if they go down, this funds follow. Is the complete opposite of what bonds are supposed to do.

I think that this may have to do with derivatives used by the managers. I am not complaining about this funds, just acknowleging that there is a positive correlation with the stock market.

What do you think? 

May 30, 2012 11:59 pm

Right now the main risk facing government bonds (FT Global is primarily a govt bond fund) isn't interest rate risk but political risk (and subsequently default risk).  As the stock market goes down, political risk goes up, and the bond prices will go down.  To look at it another way, as the risk of these govts defaulting goes up, the interest rates will go up, which will drive the prices of existing govt bonds down.