economic indicators and asset classes

Moosey · February 21, 2019, 4:22pm

When we say the effect of an economic indicator on equities and/or bonds is positive - what do we mean?

Prices of stocks increase? Bond yields increase?

125mph · February 21, 2019, 4:57pm

Economic indicators… lagging, leading, coincident…

Unemployment numbers, new house contract permits, CPI index, etc.

S2000magician · February 21, 2019, 5:00pm

I’m not sure how that answers his question.

125mph · February 21, 2019, 5:02pm

I’m not sure either!

S2000magician · February 21, 2019, 5:03pm

I should think that it’s prices and prices.

Once you’ve bought the (fixed-rate) bonds, you no longer care about the current YTM; your coupon is fixed, and you benefit from higher prices, not higher (market rate) yields.

Moosey · February 21, 2019, 5:54pm

Thanks very much S2000. I wasn’t sure what is the driver behind investing into bonds.

So if it’s the price we watch when thinking about bonds, then everything that leads to potential future interest rate increase is negative, because yields should increase, hence prices go down.