The negative correlation of the past two decades is ending albeit the five year numbers still show a negative relationship. We may be moving back to the 1970-1997 period, one of positive correlation between stocks and bonds. This is still the key issue of asset allocation. If there is no negative correlation between stocks and bonds, there is no great advantage with holding the 60/40 stock portfolio. The idea of risk parity gets called into question, and the portfolio volatilities will be higher.
There will be a higher term premium because the hedge value of holding bonds is diminished. If you are not getting an equity hedge, and there is a positive link with equities, there will be needed extra return for holding bonds.
The current positive relationship can move to negative if we move back to the low inflation period of the post-GFC period, but the evidence suggests that the last mile problem of moving to 2% or under will be harder to achieve than thought.
See previous thoughts on stock-bon correlation:
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