Good morning. Donald Trump went to Michigan today to unveil new carve-outs for the US’s beleaguered car industry — just one more instance of the president backing down on tariffs. Call it the Taco trade (for Trump Always Chickens Out). While the Taco trade may not be sufficient to stabilise US asset prices, it sure beats sticking with harmful policies. Email us: [email protected] and [email protected].

Why are stocks and bonds moving in the same direction?

For the past six trading days, stocks prices and bond prices have risen together. The S&P 500 is up 9 per cent or so; the 10-year yield has fallen by 25 basis points (remember: yields down = prices up). Nominally, this is great news from your average diversified portfolio: both bits are making money. But it is also slightly ominous. The good thing about owning stocks and bonds at the same time is that, at least some of the time, the one offsets the other. At risk-on moments, stocks up; at risk-off moments, bonds up. When the two are correlated on the way up, thoughts turn to the queasy possibility that they will go down together, too — as they did in the wretched year 2022.

Six days does not a market regime make, but we’re a little paranoid here. Why are stocks and bonds positively correlated? For context, here is a one-year chart of stock prices and bond yields, with the yield axis flipped so when that lines goes up, bond prices are rising: