Anybody know where I can find some information on how the bond/market prices affect stock prices? I have been looking for some online articles that express this a straightforward manner to no avail. I am still confused on yields of bonds affecting the stock market in general and how it effects more specific sectors such as financials?
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Relationship between bond and stock market
- Thread starter Kramer_Hedge_LA
- Start date
Bond market is perceived to have different per unit risk than the stock market.
The 90 day T-bill is called "risk free" because it has the full faith and credit of the United States Treasury. They are the only ones who can print money..Therefore no risk of loss to holders of that bill. There is no equivalent in the stock market, no risk free money except for periodic very short term arbitrage which is not available to the public.
For all other bond issues, risk is evaluated based on counterparty and credit worthiness, and so bonds receive a rating from credit rating agencies. Depending on this rating, they are able to be sold at various prices.
If one can obtain a risk free premium of say 8%-10% by purchasing a bond (duration is another subject) they may elect to do so, instead of taking the risk of losing money in the stock market. If on the other hand the interest they can obtain is only 5% (as it is now) and they need the money, they may be motivated to take that additional risk in the stock market. Both markets (equity and debt) compete for available capital.
Are we clear?
Steve
The 90 day T-bill is called "risk free" because it has the full faith and credit of the United States Treasury. They are the only ones who can print money..Therefore no risk of loss to holders of that bill. There is no equivalent in the stock market, no risk free money except for periodic very short term arbitrage which is not available to the public.
For all other bond issues, risk is evaluated based on counterparty and credit worthiness, and so bonds receive a rating from credit rating agencies. Depending on this rating, they are able to be sold at various prices.
If one can obtain a risk free premium of say 8%-10% by purchasing a bond (duration is another subject) they may elect to do so, instead of taking the risk of losing money in the stock market. If on the other hand the interest they can obtain is only 5% (as it is now) and they need the money, they may be motivated to take that additional risk in the stock market. Both markets (equity and debt) compete for available capital.
Are we clear?
Steve
"Market Timing Does Work - Evidence from the NYSE"
http://www2.warwick.ac.uk/fac/soc/w...es/wf05-236.pdf
"Market-Timing Strategies That Worked"
http://www.kc.frb.org/Publicat/Resw...df/rwp02-01.pdf
"The PE Ratio and Stock Market Performance"
http://www.kc.frb.org/publicat/econrev/PDF/4q00shen.pdf
"How Much Do Interest Rates Affect the Fair Value of Stocks?"
http://www.hussman.net/wmc/wmc070521.htm
http://www2.warwick.ac.uk/fac/soc/w...es/wf05-236.pdf
"Market-Timing Strategies That Worked"
http://www.kc.frb.org/Publicat/Resw...df/rwp02-01.pdf
"The PE Ratio and Stock Market Performance"
http://www.kc.frb.org/publicat/econrev/PDF/4q00shen.pdf
"How Much Do Interest Rates Affect the Fair Value of Stocks?"
http://www.hussman.net/wmc/wmc070521.htm
Another online article about the relationship between stock market and bond market, with some useful indicators:
http://emini-watch.com/free-stuff/bond-inter-market-analysis-and-indicators/
Key points are:
1. There is a broad relationship between the 2 markets
2. Turning points in the bond market appear to lead the stock market by about 20 days
3. Periods of over-valuation in the stock market can last for quite some time before balance is restored (something Larry Williams refers to as the "Jaws of Death")
http://emini-watch.com/free-stuff/bond-inter-market-analysis-and-indicators/
Key points are:
1. There is a broad relationship between the 2 markets
2. Turning points in the bond market appear to lead the stock market by about 20 days
3. Periods of over-valuation in the stock market can last for quite some time before balance is restored (something Larry Williams refers to as the "Jaws of Death")