It seems strange. Does correlation decline between bond and other risky asset (equity) during recession according to this below s-note paragraph?
A particular problem is flight to quality. During periods of market stress, all lower-quality and riskier assets may tend to decline together (correlation approaching +1) as investors sell these assets and buy high-quality developed-market government bonds for safety. Thus, correlation of these government bonds to riskier assets declines during periods of stress and may be negative.
In this case, developed mkt binds are being compared to other asset classes (including bonds) of developing markets.
It makes totally sense. In times of market stress, investors sell riskier assets and “flight” to more secure instruments. The effect of selling riskier assets make their price to sink at the same time triggering a short-term high positive correlation of prices (near +1). On the other hand, the higher demand of securer instruments makes their prices to increase. If you correlate prices of risky assets with safer assets you will get a strong negative coefficient of correlation.
Thank you all. It’s cleared.