There was a time when a positive correlation existed between stock prices and bond prices. But will they ever take up with one another again?
Stocks and bonds have been moving in opposite directions for so long now that an entire generation of traders, those whose first experience of a bear market was in 2000, has no idea the two asset classes were formerly fellow travellers. The positive correlation between stock prices and bond prices existed pretty much until the mid-to-late 1990s. The reason was based on mathematics. Interest rates, usually a long-term rate, are used to determine what the future cashflows (dividends) of a company are worth today, otherwise known as their present value. When interest rates go up, a dollar to...
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