After being mostly in negative territory over the past 15 years, the correlation between stocks and bonds jumped to the highest level since 1999. According to Bloomberg data, the 60-day correlation between S&P 500 Futures and 10-Year U.S. Treasury Note Futures spiked to 0.533 on Friday, the highest since September 1999 (SPY, SPTL).

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This strong and positive relationship confirms that equities are now more sensitive to the bonds market and more especially to inflation. In other words, it seems that the previous macro regime of contained inflation — well below policymakers’ target — came to an end.

Earlier this week, we saw that both equities and bonds reacted negatively to the spike in U.S. CPI, with bond-market gauges of future price pressures reaching multiyear highs. The Consumer Price Index increased by 0.8% MoM in April, smashing consensus forecast of 0.2%. It was the largest jump since June 2009. In the meantime, the so-called core CPI — excluding food and energy — rose 0.9% MoM, the most since April 1982.

On a YoY basis, the CPI figure grew by 4.2% in April, the most since September 2008. In addition, the core index rose 3% YoY, the largest since January 1996. The trend will accelerate again in May amid a positive base effect. It will probably exacerbate the debate about the strength of the current inflation shock and how long it will persist. It will be a key focus for market participants especially in a context where several indicators already suggest that the current shock could be more than transitory.