Still, many analysts expect the conditions that set the stage for correlations between stock and bond market returns to go to 1 last year, leaving both asset classes suffering painful losses, to prove ephemeral.
The biggest risk for those correlations going to 1 is when "the Fed gets really fired up to fight inflation," as with the central bank's "uh-oh" moment last year — when inflationary pressures it had deemed transitory proved anything but, forcing the central bank to shift aggressively to catch-up mode, said Jason Vaillancourt, global macro strategist with Boston-based Putnam Investments.
"That's when you really experience the strongest positive stock-bond price correlation," noted Mr. Vaillancourt. But such episodes occur in short bursts and with the Fed frontloading so much of its fight against inflation — with 450 basis points of short-term policy rate hikes over the past year — the conditions required to maintain correlations at 1 this year are unlikely to persist, he said.
The resetting of rates for a more inflationary environment over the past year, meanwhile, should leave long-duration Treasuries poised to play a supportive role again in institutional portfolios.
"The ballast that comes from the duration portion of traditional core fixed income is going to matter again this year in a way that it didn't help really last year," Mr. Vaillancourt said.
Putnam reported $164.9 billion in assets under management as of Dec. 31.
At the close of trading on March 14, the yield on the 10-year benchmark treasury bond stood at 3.69%, down from 3.99% on March 8, the day before the SVB news came out, but still up sharply from 2.14% a year before and 1.63% at the start of 2022.
Differing views on the Fed's likely path from here could determine just how passionately market players move to embrace long-duration bonds this year.
"The question for the 60/40 investor going forward is are we going to be in an environment of … higher than normal inflation ... with some degree of uncertainty around Fed policy," asked Jared Gross, New York-based managing director and head of institutional portfolio strategy with J.P. Morgan Asset Management.
In such a scenario, "negative correlations won't be as negative going forward and the diversification (that) 60/40 provides won't be as effective," he said.
J.P. Morgan Asset Management reported AUM of $2.4 trillion at the close of 2022.
Some portfolio managers contend the Fed can be counted on to play its traditional rate-cutting role in economic downturns.
"There's never been a recession here in the U.S. without a substantial fall in interest rates," and Treasuries will be the biggest beneficiaries in such an environment, noted Molly Schwartz, a portfolio manager with Pasadena, Calif.-based Western Asset Management Co., during a web-based market presentation.
And if there's not a recession? Bonds still do well, "given what they're pricing in in terms of inflation and the Fed worry," Ms. Schwartz said.
WAMCO reported $394.9 billion in AUM as of Dec. 31.
Others are more cautious.
"We are not long duration as we head into recession, and that has to do with the driver of this recession, which is central banks overtightening," said Wei Li, London-based managing director and global chief investment strategist with BlackRock Investment Institute, in an interview.
For recessions caused by excess buildups in the economy, central banks would normally be expected to cut rates, but this time around the Fed is likely to face challenges pushing inflation below 3%, leaving it constrained from cutting rates anytime soon, Ms. Li predicted. And when it finally can trim rates, perhaps a year or more from now, it will only be able to do so very tentatively, she said.
As a result, "the negative correlation between stocks (and) bonds that we got used to … in previous recessionary episodes, we don't think we can count on" as effectively this time around, Ms. Li said.
BlackRock reported combined fixed-income assets under management of $2.5 trillion as of Dec. 31, down 10% for the year year as market-related losses of $444 billion in a rising rate environment more than offset net inflows of $250 billion.