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MBS Week Ahead: Who Knows Where We'd Be Without Stock Market Weakness

Posted To: MBS Commentary

One of my favorite pastimes is debunking the notion that stock prices and bonds yields 'always' correlate. Years of indoctrination from the conventional wisdom of money managers have done us no favors as market watchers. Even if you don't invest or actively make decisions about your 401k allocation, you're still likely familiar with the notion of moving out of stocks/bonds and into the other. The net effect of such asset allocation strategy is simple . If you're selling stocks to buy bonds, then charted lines of stock prices and bond yields would move lower together (because buying bonds = higher prices and lower yields). This line of thinking makes the following stock/bond movement in early September very logical. Indeed, looking at the chart above, it's easy to conclude…(read more)

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