We’ve written here on several occasions about the interesting link that stocks and bonds have been having over the past several weeks. Traditionally, when times are relatively good or at least they’re not “bad” then stocks tend to do well and fixed income instruments do poorly. Stocks strong thenstocks and bonds move bonds weak.

Or when the economy appears to be in the doldrums then money pulls out of stocks and into the safety of bonds, mostly U.S. Treasuries and mortgage bonds for instance. Yet today we might be witnessing a shift back to the historical model.

Mortgage rates as reported by Freddie Mac today rose a bit to 4.20% for the 30 year average, up from 4.14% the previous week. Still respectably low. The ECB and Ukraine has a lot to do with that, but still. And the stock markets have reached record highs with the Dow and the S&P500 touching new highs just last week. Yet an old phrase is entering financial commentary today and it starts with “Iraq.”

Investors around the globe are wondering if the latest developments will cause the price of oil to surge once again, this at a time when the both U.S. and Europe are still trying to get their respective economies back on steady ground. At the end of the day the Dow was down 109.69 while the S&P lost 13.78.

But the familiar dynamic between stocks and bonds may be back as stocks fell today while bonds, including mortgage bonds rose by as much as 11/32 today settling down at a 7/32 positive clip. The 10 year Treasury held relatively steady with the yield dropping by four basis points. If the situation in the Middle East continues to deteriorate it’s likely that rates will continue to stay in their current range longer than previously expected.