Same News Different Response as Stocks and Bonds Disagree


By Bondsquawk

August 1,2012

According to Goldman Sachs US Economics Analyst, equity markets have become increasingly responsive to macroeconomic news releases ever since the financial crisis took place in 2008. The bond markets on the other hand have always had a close eyes on the US macroeconomic news.

The article suggested that though the bond market and the equity markets mostly agree with the importance of each macroeconomic news, their reactions are however not similar.

First, of course, good news about growth helps equity prices but hurts bond prices. Second, and less obviously, bond markets appear to be more attuned to business survey data and relatively less responsive to news about consumer confidence or GDP.

The article also stated that the reaction to different economic indicators varies depending on the place the economy is in the business cycle.

In the late stages of the last expansion, the equity market was very responsive to news about housing and inflation. Lately, manufacturing and employment-related data have had a particularly large impact.



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The above content is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of Bondsquawk or its employees.



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