But bond investors, who receive fixed coupon payments, fear that inflation will devour their upside, which is why bond prices may fall and yields rise if inflation comes in higher than expected.
What’s more, higher inflation could trigger the Federal Reserve to raise its target rate in an effort to put the brakes on the economy.
This was the scenario that seemed to trigger the recent bout of stock market volatility, sending bond yields up and stocks down.
Fears of an economic slump–or even slumping stock prices–can send investors into bonds, which then go up in price, driving down yields.
Falling yields then make stock market returns more attractive and ease financial conditions on businesses, sending investors back into stocks.