Municipal Bond Forum

Correlation between stocks and bonds?

I read your articles and find them very interesting, but here's a question I don’t see addressed: Why do high-yield tax-exempt municipal 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.

James A. Klotz responds:

From the outset, we are not proponents of bond funds. We believe that if an investor has the wherewithal to invest in individual bonds and construct one's own personal bond portfolio, it is in his best interest, 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.