TY - JOUR T1 - US Treasury Bond Betas: <em>1961–2019</em> JF - The Journal of Fixed Income SP - 20 LP - 47 DO - 10.3905/jfi.2020.1.083 VL - 29 IS - 4 AU - J. Benson Durham Y1 - 2020/03/31 UR - https://pm-research.com/content/29/4/20.abstract N2 - This study plumbs the limits of US Treasuries (USTs) as a “safe asset” through lenses neglected in the literature on the correlation between bond and equity returns. An asymmetric M-GARCH model confirms a shift from positive to negative correlations in recent decades. However, the variance around bond-stock covariance has increased, consistent with greater not lower covariance premiums. Spectral analysis shows that, like the contribution to overall variance in returns, high-frequency cycles of no longer than a week account for most of the covariance between the yardstick risk-free and risky assets, increasingly so over the years. However, there is no consistent evidence that USTs are better hedges against shorter-lived shocks. Quantile regressions suggest that USTs are not particularly convex hedges, either. Even amid very low yields in recent years, the distribution of 10-year UST returns is wider as well as more negatively skewed conditioned on stock market swoons.TOPICS: Fixed income and structured finance, performance measurement, wealth management, equity portfolio managementKey Findings• An asymmetric M-GARCH model confirms a shift from positive to negative correlations between returns on US Treasuries (USTs) and the S&amp;P 500 in recent decades. However, the variance around bond-stock covariance has increased, consistent with greater not lower covariance premiums.• Spectral analysis shows that, like the contribution to overall variance in returns, high-frequency cycles of no longer than a week account for most of the covariance between the yardstick risk-free and risky assets, increasingly so over the years. However, there is no consistent evidence that USTs are better hedges against shorter-lived shocks.• Quantile regressions suggest that USTs are not particularly convex hedges, either. Even amid very low yields in recent years, the distribution of 10-year UST returns is wider, as well as more negatively skewed, conditioned on stock market swoons. ER -