Mises Wire

Buying and Selling Risk

Buying and Selling Risk

It’s the bond market, stupid!” (Economist): “An odd thing is happening in the market for risk and the market of the riskless, also known as the equity and government-bond markets: prices are rising in both. The S&P 500 share index, up by over 20% from its low earlier this year, continues to soar. Meanwhile, rising prices in the bond market have driven yields on the ten-year note down to 3.35%—a level last seen when Elvis Presley was a youngster. The same, broadly, is true in Europe: both stocks and government-bond prices are up.

“It has happened before, of course; indeed, there have been long periods where the two have moved in tandem, in part because lower interest rates reduce the financial burden on companies and make investment cheaper. But the coupling is a perplexing one right now, nonetheless, because the reasons that investors are buying the two markets appear to be diametrically opposed: in effect, bond-market investors seem fearful that the American economy will remain sluggish, while the equity market thinks it is over the worst.”

 

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