How interest rates affect bonds and stocks


Hey guys 👊🖐

Most economic 🌏relationships are relatively straightforward when you think about them. Imagine if bonds next year were being offered for 15% but this year bonds are offered at 3% interest, Most people will sell their current bonds, put their money in a better returning asset and wait for next years bonds😏. ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀
That's pretty much how the bond market works, bonds that are currently in the market go down in price when interest rates look like they’re going up.⬆️↗️ ⠀ ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀
Stocks💱 are a bit harder to decipher, we already know that higher interest rates📤 usually affect the economy more negatively(although an economy can still grow steadily with high-interest rates) as it becomes more expensive for people to borrow money to buy stuff📷📺📲 and the currency rises due to demand from investors to put their savings🏦 in the UK. This also, of course, makes stock prices appear higher as the British pound is now worth more.Low-interest rates, of course, do the opposite. ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀ ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀ ⠀ ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀ Interest rates also come with uncertainty⚠️ as they can be changed by the UK central bank in any month. This means that most investors will choose a guaranteed return⬆️ which bonds offer than the risk of stock which can be affected by interest rate or business cycle 🆙️changes so easily.

So when interest rates rise, bonds appear more favourable and when they fall stocks do.🆘️ It’s important to remember that an environment in which interest rates are going up is not necessarily a bad one for stocks – it just can make things a little more difficult.

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