https://sg-stock.blogspot.my/2017/10/us-treasury-yields-had-been-rising-for.html
If you guys had read our previous postings, you would have expected this huge stock market fall as the US 10-year bond yield was almost approaching 3%.
We've stated that the stock market would react negatively when the US 10-year bond yield was approaching 3%.
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What's the connection between bonds & stocks?
Many people don't understand the relationship between bonds & stocks.
Fund managers will look at bond yields and earnings yields when they invest in bonds & stocks respectively.
How to calculate earnings yield? Earnings yield = 100/PE Ratio.
If a stock has a PE of 30x, then its earnings yield will be 3.33%. When a bond yield is also 3.33%, it will make sense to sell the risky investment (stock) and reinvest in a risk-free investment (bond) with the same yield. Thus, as the bond yields get higher and higher, fund managers will pull money out of stocks to invest in bonds.
This relationship between bonds & stocks will explain the stock market fall recently.
https://sg-stock.blogspot.sg/2017/12/the-usd-has-been-falling-recently.html
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