Abstracts » Business

Restoring the gilt-equity link

Article Abstract:

The price of United Kingdom government securities (gilts) has been negatively correlated with equity prices in the 18 months to April 1999. An increase in gilt yields could thus aid stock prices. Bond yield rises may be linked to stock price falls, but factors other than bond yields may affect stock prices, such as equity risk premium and earnings growth forecasts. Bond yields have risen as a result of forecasts of economic recovery, which have helped stock prices. This negative correlation tends to occur when attitudes to equity risk are volatile, and when the economic cycle is at a low point. The correlation could change and become positive over the short term.

Interest Rates, Financial markets

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Breaking the laws of supply and demand

Article Abstract:

Stock markets should perform well in terms of the balance of supply and demand, but this may not be the key factor in determining stock and bond prices. Stock buybacks have increased, and negative equity supply could occur in 1997. Pension funds have large cash holdings in proportion to total holdings, and the government is likely to end its net government bond issue. Asset prices are linked to semtiment, however, and to the liquidity preference, which varies over time, as John Maynard Keynes noted.

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Wall Street: looking to bonds

Article Abstract:

The Dow has risen by 24.9% in the first three quarters of 1995 and there is concern that shares could be overvalued. The recovery of the US dollar in relation to the Japanese yen may affect corporate results. Some analysts are not concerned and see money flows as favoring securities. Equity yields have dropped with bond yields and bonds are influencing securities. There is uncertainty over the impact of the budget and this will affect markets until the issue has been settled.

Dollar (United States)

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