MBS Day Ahead: What if Something Really Bad Happens for Stocks?

Posted To: MBS Commentary

Far too much is made of the connection between stocks and bonds. So let's make some more of it, shall we? Seriously though, leaning on this 'stock lever' connection is a matter of convenience when it works to explain what's going on in markets. The underlying premise is that stocks represent risk and bonds represent safety. As investors shed risk, they sell stocks and buy bonds, causing stock prices and bond yields to move together (the notion of the "lever" would pertain to the PRICE of one acting as a lever on the price of the other). Sometimes it's valid, and investors are actually moving money in such a manner. Other times--perhaps even MOST times--no one gives a damn. But the reason no one gives a damn is important. The not giving of damns had most to do with...(read more)

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