Treasuries haven’t been this ineffective as a stock hedge since the 1990s.

Historically, Treasuries tend to rally when stocks are tumbling, meaning they are negatively correlated. The idea is a cornerstone of the popular 60/40 strategy that uses an allocation to bonds as well as stocks to reduce the volatility of the overall portfolio.

But the one-month correlation between the Bloomberg US Treasury Total Return Index and the S&P 500 strengthened this week to 0.82. A reading of 1 means bonds and stocks always move in tandem, while -1 means the opposite. Between 2000 and 2021, it averaged -0.3.

The relationship began to flip last year, as the Fed raised rates aggressively to curb inflation, hammering both the fixed-income and equity markets.

The one-month correlation is now at its highest reading since 1996, when low inflation coupled with strong domestic growth led to both asset classes gaining.

The current weakness of bonds as a risk hedge was on full display Wednesday. Treasuries fell across the curve, with the 10-year yield jumping as much as 10 basis points to 4.12%, the highest since November 2022. Meanwhile, the S&P 500 Index fell as much as 1.4%, its biggest intraday drop since May.

The move came as investors were hit with a triple whammy; a government plan to boost bond sales, Fitch Ratings’s downgrade of the US’s top sovereign credit rating and a stronger-than-expected private job report.

It leaves Treasuries poised to wipe out their gain for the year, frustrating both bulls expecting the near-end of the Federal Reserve’s monetary tightening cycle to lead to a rally, as well as anyone owning bonds in their portfolio as a hedge.