In a blog post published February 18, 2026, IMF economists Tobias Adrian, Johannes Kramer, and Sheheryar Malik identified a structural break in the relationship between equities and government bonds that coincides almost exactly with the onset of the COVID-19 pandemic. The historical pattern, where bonds and stocks moved in opposite directions, has quietly reversed. The two asset classes now frequently trend together, including during the market stress events when negative correlation mattered most.

What changed, and why it matters

Bonds earned their reputation as equity hedges because during market downturns, investors would rotate into the safety of government debt, pushing bond prices up as yields fell. Central banks would often cut rates in response to economic weakness, further boosting bond valuations. The pandemic scrambled that logic. Supply chain disruptions triggered a wave of inflation that was structural, not cyclical. Central banks, which had spent years fighting low inflation with loose policy, suddenly needed to do the opposite: raise rates aggressively to cool an overheating price environment. When rates rise, existing bond prices fall. So in a world where inflation shocks are the dominant market force, stocks and bonds can fall simultaneously, and that is exactly what happened.

The IMF economists link this shift directly to the rise of supply-driven inflation shocks beginning in early 2020. The 2022 experience was the clearest proof of concept. Simultaneous declines in both stocks and bonds produced a 16% drawdown for classic 60/40 portfolios, the worst performance of that strategy since the 2008 financial crisis.

The 60/40 portfolio’s identity crisis

Post-2020, stock-bond correlation has shifted toward positive territory during acute selloffs. That means the 40% bond allocation, which was supposed to cushion equity drawdowns, instead amplified them. The IMF analysis does not frame this as a temporary distortion. The language is structural, meaning the economists believe the pre-pandemic relationship between stocks and bonds is not simply going to snap back once inflation normalizes or central bank policy stabilizes.

What investors are left holding

The IMF’s findings push portfolio managers toward a genuinely uncomfortable question: if bonds can no longer be relied upon to offset equity risk, what can? The report implicitly points toward alternatives, a broad category that includes real estate, commodities, and strategies that can generate returns uncorrelated with traditional market movements. Commodities often perform well in inflationary environments, which is precisely the scenario where bonds now struggle.