Eli5 why government bonds affect the equity market.

Question

Eli5 why government bonds affect the equity market.

In: 1

Answer 1

It’s a trade off of risk vs. return. If the choice is 1% guaranteed or 7% avg. but highly risky return, more people will choose risk to try and earn 6% more. If the guaranteed return is 4% vs. risky 7%, many investors will choose the guaranteed return in that case, shifting money from equities to bonds.