How are Bond Yields and Stock Markets Related to Each Other

1. How are Bond Yields and Stock Markets Related to Each Other? It is very interesting to know that the bond yields play a valuable role when it comes to evaluating the equities. While there are exclusions, the equity markets have usually moved damagingly against the bond yields. That means as bond yields slow down, the equity markets are meant to outstrip by a larger margin and as bond yields rise up equity markets tend to weaken. This relationship may not precisely sustain in the extremely short run. But if you take it over a period of 5-10 years, this relationship will be clearly evident. The influence and association between bond yields and the stock markets can go beyond the physical boundaries. For example,in a data given by One of the best stock broker in India, a rise in the Indian stock markets was the outcome due to a quick increase in the U.S. bond yields in March 2021. Let’s delve more into this topic and find out the relationship between bond yields and stock markets. Bond Yields and Cost of Capital Higher government bond yields simply refer that the deriving costs for businesses have gone up. Bond yields are typically utilized as the risk-free rate when measuring the cost of borrowing capital. When bond yields rise, the cost of borrowing also goes up.

2. When a firm finds it costly to borrow funds to maintain its operations, it affects the firm’s valuation and stock performance. Costly borrowing also derives the point that less money is available for the business to yield in the form of dividends. Bond Yields and Foreign Funds When bond yields rise, it tends to turn the debt market more striking. For example, Indian bond yields, at a specific time, are providing better yields than the worldwide market, global investors will find Indian debt more inviting than global debt. Similarly, if the debt market appears more arresting as compared to equities, foreign institutional investors (FII) flows tend to shift towards equities. The idea of opportunity costs plays a role here too.