InvestorQ : What is the connection between bond yields and the Equity markets?
Ankit Patil made post

What is the connection between bond yields and the Equity markets?

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Ankit Patil answered.
3 weeks ago
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When investors value equity, they add the equity risk premium they seek to get a risk-free rate to compute the expected rate of return. In general parlance, the easiest way to estimate a risk-free rate of return is to compare it with the long-term government bond yield and this is why long bond yields matter to equities.

If growth is strong, long bond yields are generally rising and that is because long bond yields reflect the growth and inflation mix in the economy. However, sometimes they also rise when inflation is going higher. So, both situations impact equities differently.

If bond yield continues to rise, it could pressure equity (stocks) and increase the borrowing costs for consumers and companies, which could also increase volatility in the market.
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