do bonds go up when stocks fall?

Do bonds go up when stocks fall?

Short description — do bonds go up when stocks fall? The short answer: often yes. High‑quality government bonds, particularly US Treasuries across short and intermediate maturities, frequently rally during equity sell‑offs as investors seek safety and price in lower policy rates. That said, the relationship is not guaranteed — rising inflation, a surge in real yields, or credit stress can push bond prices down alongside stocks.

As of January 20, 2026, according to reporting from AFP/Getty Images and associated market coverage, bond markets remain a key signal for policymakers and investors, and episodes of simultaneous selling in equities and Treasuries have shaped policy responses in recent years.

Overview and short answer

Why do bonds often rise when stocks fall? The historical intuition is twofold:

• Flight‑to‑quality: when risk appetite collapses, capital tends to move from risky assets (stocks, high‑yield credit) to the safest liquid instruments — primarily government bonds — pushing bond prices up and yields down.
• Policy expectations: equity downturns often increase expectations that central banks will ease policy (cut rates) to support growth, which lowers expected short‑term rates and long‑term yields, lifting bond prices.

Key exceptions arise when inflation expectations or real yields move higher, or when markets price greater credit or fiscal risk. Plain‑language summary: do bonds go up when stocks fall? Frequently, yes — but not always.

Historical patterns and empirical evidence

Long‑run behavior and typical negative correlation

Over multi‑decade horizons, high‑quality government bonds have often acted as ballast for diversified portfolios. From post‑World‑War II sample periods through to the 2010s, long stretches show a negative correlation between equities and nominal government bond returns. During major equity drawdowns (for example, the early 2000s tech bust and the 2008 Global Financial Crisis), long‑dated Treasuries and high‑grade bonds tended to rally as investors sought safety and markets priced in lower growth and policy easing.

This negative correlation underpins why classical asset allocations (e.g., a 60/40 stock/bond split) historically reduced portfolio volatility and drawdowns: bond gains helped offset equity losses in many market downturns.

Periods when bonds and stocks moved together

There are notable episodes when bonds and stocks fell together. The early 1980s — a period of disinflation driven by aggressive monetary tightening — saw rising nominal yields and weak equity returns. More recently, 2022 provides a clear example: a global inflation shock prompted central banks to raise policy rates aggressively, pushing nominal and real yields sharply higher and causing losses in both bonds and equities simultaneously.

Similarly, when inflation expectations jump unexpectedly or real yields rise because of stronger growth or fiscal concerns, both asset classes can suffer. That’s why the hedge is conditional: the macro driver matters.

Empirical measures (correlation, beta)

Two commonly used measures of the relationship are correlation and bond beta to stocks:

• Correlation: a statistical measure of how two returns move together. A negative correlation (e.g., −0.3) indicates bonds and stocks often move in opposite directions; a positive correlation indicates they move together. Empirical studies show correlations vary over time and across regimes.

• Beta of bonds to stocks: measures how much a bond portfolio moves for a 1% move in equities. A negative beta implies bonds rise when stocks fall. Over rolling windows, bond betas have fluctuated — negative in easing/flight‑to‑quality regimes and positive during inflationary or tightening episodes.

Both metrics are regime‑dependent. Investors who rely on a historical average hedge risk being surprised when the regime changes.

Economic mechanisms explaining the relationship

Interest‑rate channel

Bond prices move inversely to yields. When markets expect policy easing (rate cuts), the present value of future coupon payments rises and yields fall, so bond prices increase. Often, equity weakness triggers expectations of looser policy, reinforcing the negative stock‑bond relationship. Conversely, if risk‑off is accompanied by fears of inflation or fiscal stress, yields may rise and bonds may not provide a hedge.

Flight‑to‑quality and liquidity effects

In stress episodes, investors shift assets into the most liquid safe havens. US Treasuries typically sit at the center of this demand because of their depth and liquidity. High‑quality sovereign debt can see inflows that bid prices up even if other fixed‑income sectors (like corporates) sell off. Liquidity also matters: severe market dysfunction can temporarily push Treasury yields higher (lower prices) even as investors seek safety — this was visible in some flash episodes where liquidity premia widened.

Inflation and real‑rate channel

Inflation expectations and movements in real yields are critical. If inflation expectations rise, nominal yields often rise too (to preserve real returns), which pushes bond prices down. Real yields (nominal yields minus inflation expectations) rising means bonds face an increased discount rate on future cash flows; that can cause bond prices to fall simultaneously with equities if the shock is inflationary or leads to monetary tightening.

Credit risk and risk premia

Government bonds respond differently from corporate bonds. In recession or credit‑stress scenarios, government bond prices often rally while corporate bond spreads widen and investment‑grade or high‑yield corporates fall. That divergence reflects differing exposures: government bonds primarily reflect interest‑rate and inflation risk, while corporates also carry credit and liquidity risk.

Which bonds tend to go up when stocks fall?

US Treasuries (short, intermediate, long)

US Treasuries are the most reliable safe haven. But maturity matters:

• Short maturities (e.g., 1–3 years): strongly influenced by central‑bank policy expectations. If markets expect rate cuts, short‑term yields fall and short bonds gain.
• Intermediate maturities (3–10 years): combine policy expectations and term premium moves. They often rally in risk‑off episodes driven by growth scares and expected easing.
• Long maturities (10+ years): sensitive to both inflation expectations and term premia. When disinflationary growth fears dominate, long yields fall (prices rise). If inflation expectations spike, long yields may rise instead.

In many equity sell‑offs tied to growth fears, intermediate and long Treasuries often lead the rally.

Investment‑grade versus high‑yield corporate bonds

Investment‑grade credit can benefit from a flight to safety relative to high‑yield credit, but corporate bonds are still exposed to widening credit spreads when equity markets tumble. High‑yield (junk) bonds tend to move more like equities — they can fall sharply when stocks decline because default risk and liquidity premia increase. Thus, high‑quality sovereigns are the most consistent hedge.

Inflation‑linked bonds (TIPS) and real yields

TIPS (inflation‑linked Treasuries) protect real purchasing power. In disinflationary downturns, TIPS may underperform nominal Treasuries because break‑even inflation falls; but when real yields fall due to flight‑to‑quality, TIPS can rally alongside nominal Treasuries. In inflation shocks, TIPS may outperform nominal Treasuries if inflation surprises to the upside, but both TIPS and equities could react negatively if real yields rise.

Typical scenarios and counterexamples

Recession / growth shock scenario

Common case: weaker growth or recession fears → heightened risk aversion → flight to Treasuries → yields fall and bond prices rise; central banks respond by easing policy, reinforcing the bond rally. Stocks fall due to earnings and growth concerns. In this scenario, high‑quality bonds usually provide protection.

Inflation shock / monetary‑tightening scenario

Counterexample: persistent or rising inflation prompts central banks to hike rates or to delay easing → yields rise → bond prices fall. Equities fall too because higher discount rates reduce equity valuations and higher rates hurt growth. The 2022 global episode is a textbook case where both stocks and bonds fell together.

Policy, geopolitics and supply effects

Large fiscal deficits, shifts in central‑bank communication, or coordinated foreign selling (e.g., a “Sell America” wave) can push yields higher even amid equity weakness. Large supply increases in sovereign debt (from fiscal expansion) or foreign demand drying up can invert the typical relationship and produce simultaneous declines in both markets.

Implications for portfolio construction

Diversification and the 60/40 rationale

The historical negative correlation between stocks and high‑quality bonds underpinned the classic 60/40 allocation: stocks for growth, bonds for stability. That allocation tends to reduce portfolio volatility and smooth withdrawals for long‑term investors. However, the efficacy of 60/40 depends on the regime. In periods like 2022 where the hedge failed, investors saw losses in both legs.

Tactical choices (duration, credit quality, cash)

Practical guidance to manage hedge properties:

• Duration: increase duration (longer maturities) when you expect easing or disinflation; shorten duration when you fear inflation or sharp policy tightening.
• Credit quality: favor sovereigns and investment‑grade fixed income for hedging; high‑yield behaves more like equities.
• Cash and short‑term Treasury bills: cash preserves capital and offers flexibility, though bills may not protect purchasing power if inflation rises.

Adjustments should be based on forward‑looking indicators (see below) and personal risk tolerance; these are educational observations, not investment advice.

Alternatives and complements to bonds

When bonds’ hedge properties are impaired, investors can consider complements:

• Cash and short‑dated government bills for liquidity.
• Gold and other real assets that often hedge inflation.
• Put options and volatility strategies to provide explicit downside protection.
• Diversified credit exposures and inflation‑protected securities.

Each alternative has tradeoffs in cost and effectiveness across scenarios.

Indicators to watch

Key market signals that help anticipate whether bonds will rally when stocks fall:

• Nominal yields and curve levels (e.g., 2‑year, 10‑year Treasury yields)
• Real yields (e.g., 10‑year real yield derived from TIPS)
• Break‑even inflation rates (10‑year break‑even = nominal 10y yield minus TIPS 10y real yield)
• Fed policy expectations (futures/OIS pricing and the Fed funds forward curve)
• Credit spreads (investment‑grade and high‑yield indices)
• Treasury auction results and dealer/investor demand
• Safe‑haven flows (cash allocations, money‑market inflows)

Watch these together: falling real yields and stable/declining break‑evens during an equity sell‑off often indicate bonds will rally. Rising real yields or widening break‑evens suggest the hedge may fail.

Case studies

Global Financial Crisis (2008)

Short note: Treasuries and high‑quality sovereigns rallied sharply as equities plunged. Investors sought safe, liquid assets while the Fed cut policy rates aggressively and enacted unconventional easing, reinforcing bond gains. Bonds acted as a reliable hedge.

COVID‑19 market turmoil (early 2020)

Short note: the initial shock produced acute liquidity stress that briefly disrupted correlations — some fixed‑income segments experienced selling — but soon Treasuries rallied strongly as risk aversion spiked and central banks implemented massive easing.

2022 inflation / tightening episode

Short note: both stocks and bonds fell as central banks tightened policy to fight persistent inflation. Nominal and real yields rose materially and the traditional bond hedge largely failed; this is a clear example of when do bonds go up when stocks fall? — not necessarily.

Historical note tied to current reporting

As of January 20, 2026, market coverage noted renewed “Sell America” flows where investors sold US stocks, Treasuries and the dollar in response to geopolitical and trade tensions. Reporters highlighted that the bond market is key: large moves in Treasury yields can influence policy decisions. That example illustrates how political or supply shocks can cause simultaneous selling across asset classes and how the bond market can be the decisive indicator for broader market reactions (reporting date: January 20, 2026; source: AFP/Getty Images and major news outlets).

Limitations and caveats

• The relationship between stock and bond returns is probabilistic, not deterministic. Historical tendencies do not guarantee future behavior.
• Hedge effectiveness depends on bond type, maturity, credit quality, and the nature of the economic shock.
• Liquidity and technical factors (large sales, dealer balance‑sheet constraints, or poor auction demand) can temporarily distort typical patterns.
• Macroeconomic surprises (inflation spikes, sudden fiscal shifts) can flip the sign of the relationship.

Always view stock‑bond dynamics through the lens of the prevailing macro regime.

Summary (takeaways)

1. Do bonds go up when stocks fall? Often yes — especially high‑quality government bonds — because of flight‑to‑quality and expectations of policy easing.
2. The hedge can fail when inflation expectations or real yields rise, or when political/fiscal shocks push sovereign yields higher.
3. Duration and credit quality matter: Treasuries and investment‑grade bonds are more reliable hedges than high‑yield credit.
4. Monitor yields (nominal and real), break‑even inflation, Fed policy pricing, credit spreads, and Treasury demand to assess whether bonds will likely rally during equity sell‑offs.

Further exploration: consider how these takeaways affect your diversification approach and tactical allocation in the current macro cycle. Explore Bitget resources for additional markets and tools to monitor macro indicators.

See also

• Portfolio diversification
• Treasury yields and the yield curve
• Inflation expectations and break‑even rates
• Flight‑to‑quality episodes
• Duration risk and immunization strategies
• TIPS and inflation protection

References

• NPR — “When stocks are down, bonds hold steady or go up. So why are bonds down?”
• Vanguard — “Understanding the dynamics of stock/bond correlations”
• Econofact — “When Do Stocks and Bonds Move Together, and Why Does it Matter?”
• Morningstar — “Are Bonds Broken as Diversifiers for Stocks?”
• PIMCO — “Negative Correlations, Positive Allocations”
• Russell Investments — “Why Stocks and Bonds Work Together”
• A Wealth of Common Sense — “What Happens to Bonds When Stocks Go Up?”
• Investopedia — “Stock Market Down? One Thing Never to Do”
• Morgan Stanley — “Why Bonds May Keep Beating Stocks”
• CNBC — “Bond sell-off accelerates as tariff threats mount”

Practical next steps

• Track the indicators listed above weekly to see whether bond yields are moving in a way that would support a hedge.
• If you want a simple defensive tilt: increase exposure to high‑quality government bonds or short‑dated Treasuries when growth surprises are negative and inflation expectations are stable.
• Consider costed hedges (options) or inflation‑protected securities if you worry about regime shifts.

Explore Bitget learning materials and market dashboards to monitor yields, credit spreads, and macro signals in real time. For Web3 wallet needs, consider Bitget Wallet as an integrated option for crypto‑focused allocations.