Decoding semiconductor volatility

Positive correlation between risk assets and government bonds breaks the roles these asset classes play within a portfolio. Here, we outline why correlations have risen, and how investors can seek to limit the impact on their portfolios.

Watch a quarterly Fund update with April LaRusse: Head of Fixed Income Specialists at Insight Investment.

Markets are navigating tensions between a Fed that offers less guidance and an inflation backdrop that remains sticky. Added uncertainty from Middle East tensions and energy-price swings is further shaping sentiment, with recent moves in Treasury yields suggesting the market wants the Fed to hike. However, with yield volatility expected to linger in the near term, we see today’s elevated Treasury yields as an especially compelling opportunity in fixed income.

The war in Iran has increased volatility across fixed income markets, pushing municipal bond yields higher as investors reassess inflation risk, energy costs and the path of Federal Reserve policy. Even so, historically elevated municipal bond yields present a compelling opportunity for tax-sensitive investors.