Bonds Fail to Hedge Stock Declines as Money Market Inflows Rise

Bond indices AGG, TLT, and LQD fell alongside SPY since June highs, mirroring 2022 trends. Investors shift capital to money market funds and buffer ETFs amid inflation fears.

Woofun AI reports that Bloomberg ETF analyst Eric Balchunas observed bonds failing to hedge against recent stock declines. Since SPY dropped from its June highs, AGG, TLT, and LQD have all fallen, a pattern resembling 2022. Many investors rely on the 40% bond portion of 40/60 portfolios for hedging, driving substantial inflows into money market mutual funds and buffer ETFs. Balchunas noted that while bonds are not permanently ineffective, their recent performance is unsatisfactory. The Federal Reserve’s prolonged rate cuts previously boosted both assets, whereas 2022 rate hikes caused simultaneous drops. Recent crude oil price increases have reignited inflation concerns, triggering similar trends.