“You still need bonds in the portfolio. Are Treasuries going to be the best juice for the squeeze? Probably not,” said Young, director of market strategy. “You could use things like investment-grade corporates -- I think there’s a lot of options in that space.”
Of course, Treasuries weren’t the perfect hedge during the throes of March’s turmoil, when U.S. equities fell into the swiftest bear market on record. The cash crunch that ensued saw yields climb as investors sold even their high-quality holdings in an effort to raise funds. At one point, Treasuries and stocks suffered their worst combined losses since 2008.
But the unprecedented nature of the virus and the magnitude of the Fed’s response means that such an episode isn’t likely to be repeated, according to JPMorgan Chase & Co.
“For Treasuries to lose their hedging properties more broadly, such a market impairment would be need to be a regular occurrence during equity-market corrections,” analysts including Nikolaos Panigirtzoglou wrote July 31. “Given the Fed’s emerging role as market maker of last resort, it is unlikely in our mind that such a breakdown in Treasury market functioning would become the norm during equity corrections.”
This article was provided by Bloomberg News.