Market Impact
Bonds
Expectations of future growth and inflation by fixed income investors determine which Treasury debt maturities are the most attractive to buy. Such preferences help shape the yield curve. However, since the outlook for economic activity and price behavior frequently changes, the yield curve is constantly in a state of motion.
Stocks
The equity market has not taken the yield curve seriously, despite its proven forecasting record. This is surprising because stock prices are based on expectations of future corporate earnings and overall business activity, both of which can be foreseen by the behavior of the yield curve. Indeed, studies have shown that the yield curve can serve as an effective market-timing strategy, yet it ...
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