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Bond markets are responding more to geopolitical risk and inflation than to traditional signals such as US economic growth, according to AlphaSimplex Group strategist Kathryn Kaminski.
Kaminski said a breakdown in cross-asset correlations has made fixed-income trends harder to identify. In short-term measurements, bonds are now more closely correlated with energy than with equities, she told Bloomberg Television on Friday.
Treasury yields have remained elevated even as traders increasingly expect the Federal Reserve to hold interest rates steady. A US auction of 30-year bonds on Thursday drew a 5.216% yield, the highest since 2001, while the long end of the curve underperformed on Friday.
Equity markets have been more willing to absorb higher energy prices and the prospect that rate cuts are not imminent, Kaminski said. The S&P 500 reached another record on Thursday.
Equities and commodities, particularly base metals and energy, have provided the strongest trend signals in 2026 despite continued volatility, according to Kaminski. She said investors remain focused on earnings, US growth, and artificial intelligence spending rather than fiscal concerns such as the deficit.
Kaminski said equities could become more vulnerable if an unexpected catalyst shifts sentiment. Bond markets are already pricing in more downside risk because of their greater sensitivity to inflation uncertainty.
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