Correlations between prices of US stocks and prices of US Treasury bonds

S. Treasury bonds. The United states Treasury bond values and equity market prices varies in response to changes of individual organizations, market and economic conditions such as the expected interest rates, expected returns and perhaps monetary policy. Such fluctuations of the government policies and market conditions may lead to volatility in both the market prices of stock as well as bond market. In addition, changes with policies and economic conditions may result to a reduction in liquidity for some bonds held by the fund. The reason is that the investors will not give up and they will therefore keep on putting money in the stocks as well as bonds so as to maintain the prices in case the equity market falls.

The result is that the demand among the Treasury bond and stock will spread and cause the prices for each to rise. Inflation affects both market prices of stock and treasury bonds. As inflation increases, corporations and companies have to pay more for inputs, suppliers and other products and services. This will in turn reduce their profitability and hence both the stock and bonds are much risk. On the other hand, investors’ confidence can make the corporation stocks smart and attractive. This means that, with such climatic confidence that stock value grows along with the corporation issuing stock, both stock and bond prices can rise. Work Cited Banz, Rolf W. "The relationship between return and market value of common stocks. " Journal of financial economics 9.