January 2019 Data Update 2: The Message from Bond Markets!
aswathdamodaran.substack.com
I must admit that I don't pay as much attention to fixed income markets, as I do to equity markets, other than to use numbers from the markets as inputs when I value companies or look at equity markets. This year, I decided to look at bond market movements, both in the sovereign bond and corporate bond markets for two reasons. First, bond markets offer predictive information about future economic growth and inflation, and since one of the big uncertainties for equities going into the new year is whether the economy could go into recession, it is worth paying attention to what bond investors are telling us. Second, one of the stories in the equity market during 2018 was that the price of risk, in the form of an equity risk premium, rose and became more volatile, and it makes sense to look at whether the price of risk in the bond market, taking the form of default spreads, also exhibited the same characteristics. Bear in mind, though, that the bond market is not my natural habitat and if you are a fixed income trader or an interest rate prognosticator or even a Fed Watcher, you may find my reasoning to be simplistic and perhaps even wrong.
January 2019 Data Update 2: The Message from Bond Markets!
January 2019 Data Update 2: The Message from…
January 2019 Data Update 2: The Message from Bond Markets!
I must admit that I don't pay as much attention to fixed income markets, as I do to equity markets, other than to use numbers from the markets as inputs when I value companies or look at equity markets. This year, I decided to look at bond market movements, both in the sovereign bond and corporate bond markets for two reasons. First, bond markets offer predictive information about future economic growth and inflation, and since one of the big uncertainties for equities going into the new year is whether the economy could go into recession, it is worth paying attention to what bond investors are telling us. Second, one of the stories in the equity market during 2018 was that the price of risk, in the form of an equity risk premium, rose and became more volatile, and it makes sense to look at whether the price of risk in the bond market, taking the form of default spreads, also exhibited the same characteristics. Bear in mind, though, that the bond market is not my natural habitat and if you are a fixed income trader or an interest rate prognosticator or even a Fed Watcher, you may find my reasoning to be simplistic and perhaps even wrong.