Hi,
Can anyone possible explain why Treasury returns are highly correlated with Corporate bonds returns (historically above 90%)? Since bond prices go down with rates go up, wouldn’t intuition show a negative correlation?
Any help/guidance would be greatly appreciated!
Thanks!
You answered your own question. Yields go up, prices go down. This is true for both corporates and treasuries.
Ignoring income, yield curve shifts have the largest impact on fixed income returns. Spreads for investment grade corporates are less volatile than yields. So treasury yield curve shifts will have a large impact on corporate returns.