- "We study the factors determining the correlation between equities and bonds. At first sight, it is reasonable to think that:
• a rise (fall) in growth or a fall (rise) in risk aversion will lead to a rise (fall) in both share prices and long-term interest rates, implying a positive correlation between equities and interest rates;
• a rise (fall) in commodity prices - not linked to growth - will lead to a fall (rise) in share prices and to a rise (fall) in interest rates, meaning there would be a negative correlation between equities and long-term interest rates;
• a very expansionary (restrictive) monetary policy will lead to a fall (rise) in long-term interest rates and to a rise (fall) in share prices, and hence a negative correlation between equities and long-term interest rates."
- "We therefore have one regime (linked to growth and/or risk aversion) with normally a positive correlation between equities and long-term interest rates and two regimes (commodity prices, monetary policy) with normally a negative correlation between equities and long-term interest rates."
- "In the past we have seen:
• a regime of positive correlation between equities and interest rates (end-1998 to early 2004, end-2006 to 2010) linked to growth and risk aversion;
• a regime of negative correlation between equities and long-term interest rates (1996 to early 1998, end-2004 to the first half of 2006) linked to monetary policy."
- "Periods of sharp fluctuations in commodity prices (end-2007 - early 2008) have for the time being been too short to lead to an identifiable regime of negative correlation. However, such a regime must be included in the list of possibilities in the future."
• a rise (fall) in growth or a fall (rise) in risk aversion will lead to a rise (fall) in both share prices and long-term interest rates, implying a positive correlation between equities and interest rates;
• a rise (fall) in commodity prices - not linked to growth - will lead to a fall (rise) in share prices and to a rise (fall) in interest rates, meaning there would be a negative correlation between equities and long-term interest rates;
• a very expansionary (restrictive) monetary policy will lead to a fall (rise) in long-term interest rates and to a rise (fall) in share prices, and hence a negative correlation between equities and long-term interest rates."
- "We therefore have one regime (linked to growth and/or risk aversion) with normally a positive correlation between equities and long-term interest rates and two regimes (commodity prices, monetary policy) with normally a negative correlation between equities and long-term interest rates."
- "In the past we have seen:
• a regime of positive correlation between equities and interest rates (end-1998 to early 2004, end-2006 to 2010) linked to growth and risk aversion;
• a regime of negative correlation between equities and long-term interest rates (1996 to early 1998, end-2004 to the first half of 2006) linked to monetary policy."
- "Periods of sharp fluctuations in commodity prices (end-2007 - early 2008) have for the time being been too short to lead to an identifiable regime of negative correlation. However, such a regime must be included in the list of possibilities in the future."
Natixis Flash Economics 395 20100806
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