Bonds are considered to be the safest and the most risk averse investment instrument, therefore i would be correct to assume that, if investors do not have any high profit making opporunities, they would prefer to keep their cash invested in safe investments such as good quality bonds.
If we try and asses investor phschee will i be correct in assuming that when there is a sell of in the bond market this should indicate a flow of liquidity in to other assets classes accross the board.
A very naive assumption would appreciate a response from the more experienced veterans on the forum.
Looking forward to your response.
Sikander
Generally, in a very crude way, yes. When investors are scared there is what is called a flight to safety. Large drops in equity markets usually correspond with drops in yields (increase in prices) for high quality (typically government) debt securities.
As investor confidence in the economy returns, the small yields offered by these instruments force investors to move out of treasuries and back into more risky investments that offer the potential of higher returns.
If that is the case then low commodity prices around the world can be related to the fact that investors have thier money securied in Bonds, as well as, other factors such as slow down in china etc
And once the interest rates in the US start increasing there might be a sell of in the bond market which could…trigger money flowing in to commodities?
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