The historically low yields on Treasury bonds are the hallmark of a bubble, according to some commentators. This article analyses the relationship between bond yields, the stock market, and inflation over the past 50 years. It finds that the riskiness of nominal bonds changes over time and that investors and policymakers can use the changing stock-bond correlation as a real-time measure of inflation expectations.
Tag Archives: John Y. Campbell
Hard Times
Stock investor response to the financial crisis indicates an expectation of lowered future corporate earnings. Historic relations between valuation of stocks and bonds are not the same post crisis as they have been in the preceding decades.