(Bloomberg) -- Global stocks and bonds are moving more closely in line with each other than they have in nearly three decades, providing a headache for fund managers seeking to spread their risk.

The rolling one-year correlation between the asset classes is near its highest since 1997, according to data compiled by Bloomberg. The narrowing difference in performance makes it “tricky to diversify equity exposure,” Sanford C. Bernstein strategists Sarah McCarthy and Mark Diver wrote in a note.

After unusually moving in the same direction last year, the asset classes were expected to return to an inverted relationship in 2023 and boost the appeal of the popular 60/40 portfolio. But returns in the investment strategy have tapered off after a strong start to the year as bonds price in a recession while stocks show resilience on bets of an easing in central-bank policy.

The Bloomberg Global Aggregate Index, which tracks the performance of investment-grade debt, has bounced from its October trough, but remains around 18% below its peak. The MSCI World Index, meanwhile, has gained 5.4% so far this year after slumping nearly 20% in 2022.

“Markets are pricing the best of both worlds: a recession that brings inflation down rapidly and keeps rates low, yet one where corporate earnings do not fall sharply,” said Barclays Plc analysts including Ajay Rajadhyaksha. “We are skeptical and think both bonds and US stocks look expensive,” they wrote in a note.

--With assistance from Greg Ritchie.

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