Links between the Bond and Equity Markets?

Question

I'm trying to find out how the bond and equity markets are linked. Any diagrams, graphs and text would be much appreciated; the longer the better!

If I understand correctly, the two used to be positively correlated until around 2000, when a negative correlation started to set in, with the two correlated most negatively in 2003; however there are signs that they may be starting to become positively correlated now. Please feel free to correct me if I am wrong, preferably along with your opinion and why the two are positively/negatively correlated and why this has changed over time.

Any other links between the two markets would be greatly appreciated.

I'm only 16, so I would be grateful if you could use (relatively) simple terms and not stuff taught in economics at degree level!

Thanks for your help.

Answer 1

There is no direct link between the two.

But, think of the entire market. There is a given amount of money in this entire market, and the one that is favorable to the invester gets more share of the money.

When economy slows and companies make less money, stock prices tend to grow slower or even go down. When this happens, more money goes to the bond market. Thus, bond market will have more buyers and the price goes up.

Bond and equity usually have the inverse relationship but there are times they both went up. When there is SO MUCH money in the market people had difficulty finding a suitable investment, they tend to both go up.

Answer 2

In general, one would expect a positive correlation: if bond prices go up, interest rates go down, and investing in equities becomes more attractive, so those prices go up. But there are other factors at work in both markets, so this correlation does not always obtain. Such factors may include foreign trade balances, or changes in currency exchange rates.

Answer 3

Debt ability which you will take transport of a month-to-month fee of interest, and that's certain. on the adulthood date - whilst the term of the debt or bond, smae situation, expires, you will recieve your preliminary quantity which you invested. As for shares, fairness and shares, they're a similar situation. you could or would possibly no longer recieve dividends, those are no longer certain. the value of this protection would the two upward push or fall, depednding on the fortunes of the employer. in spite of the incontrovertible fact that, you could sell at on the tip, or once you opt to and get you funds. Wheter it extra or below you initially invested. The returns on those are far extra beneficial than on debt, yet those ar e additionally extra volatile.