Municipal Bond Forum
Is there a correlation between stocks and bonds?
Q
Why do high-yield, tax-exempt muni bond funds act more like stock (equity) funds than bond funds? I thought bonds were supposed to move in a somewhat opposite fashion relative to stocks over time. My correlations don’t show this negative relationship.
A
James A. Klotz responds:
First, we believe that those who have the wherewithal to invest in individual bonds and construct their own personal bond portfolios should do so, as it can be done selectively without large sales charges and ongoing fees.
Historically, there is no negative correlation between stocks and bonds.
The enemy of bonds is inflation and will cause rates to rise, but inflation is not kind to stocks either.
Mutual fund prices are mostly influenced by investment dollar inflows and fund share redemptions.
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